Archive for October, 2009

  • Moron Attacks Peter Schiff
    , October 6th, 2009 at 11:27 pm

    I’ve had my disagreements with Peter Schiff but this attack on him is just plain silly.

  • Carney Vs. Taibbi
    , October 6th, 2009 at 10:43 am

    There’s a nice little blog war going on between Matt Taibbi and John Carney over naked short selling, and Carney is mopping the floor with him.
    Taibbi posted a video which he claimed show a trader placing a naked short sale. Well, not a short sale exactly but a locate. And this proves that naked shorting is fraudulent because, well, I don’t get that part.
    The only point that I see is that the software the trader uses isn’t worth a damn. It claims to have instantly found a bazillion shares of Citi. Taibbi claims it’s Penson though that’s not the case.
    Carney writes:

    Importantly, this trade would have to be put through some broker who would have the responsibility to check whether the shares could reasonably be located in the amount requested. The speed with which this transaction takes place implies that it is a fully automated system that processes trades that would then have to be passed on to an actual back-office at a brokerage where much a much slower review would take place. And at the brokerage, putting aside an egregious human error (which is always possible), the trade would have been rejected.

    As I see it, this is like posting a video of guys wearing ski masks standing outside a bank and claiming it’s a video of a hold-up. No, I mean it could be a video of a hold-up. Impressed? Me neither.
    More from Kid Dynamite:

    Daily, traders and brokers will obtain a list of easy to borrow stocks, which get loaded into their trading system. If you go to short GE, it’s on the “easy to borrow list,” and as long as you don’t try to short 10,000,000,000 shares, you won’t have to call your stock loan department to “borrow” shares to short – everyone knows the stock is readily available. Other stocks, however, like Citi (which is almost certainly the stock in Taibbi’s video) can at times be difficult to borrow – like during the summer when they were doing an exchange of preferred stock for common stock, and everyone wanted to be short the common (and long the preferred) to arbitrage the spread between the two share classes.
    So, if you try to short Citibank (a few months ago), any good execution system will check its easy to borrow list, see that Citi is not on the list, and ask you where your “locate” is from – in other words, which broker agreed to lend you the stock. There are also many electronic systems where you can request a stock locate electronically – but this is not what’s in Taibbi’s video! What the video clearly shows is that the stock in question (let’s call it C) is on the hard to borrow list. The trader gets a warning message saying that the stock needs to be borrowed, and asking for the trader to either submit the borrow information or elect not to submit the trade.
    The trader in the video is NOT submitting a request for the stock to be borrowed – he’s entering information into an audit trail point asking WHO the stock was borrowed from, HOW MUCH was borrowed, and WHEN it was borrowed – exactly to prevent problems related to naked short selling! This way, if the seller fails to deliver shares, the broker can easily pull the exact reference that was used for the short sale. Of course, just because I say that I was able to obtain a locate for a gajillion shares of C doesn’t mean that I actually was able to – and that’s why especially hard to borrow stocks should have another level of compliance checking embedded in them. If this trading system in the video allowed a trader to claim a locate that was clearly impossible, then that’s a condemnation of the inadequacy of this trading system – not of the borrow market and the legitimacy of short selling. Fortunately, there was no naked short sale of tens of billions of shares of C on this trade, and Taibbi’s post is a gigantic misunderstanding of what was actually going on.

  • Gold Makes New All-Time High
    , October 6th, 2009 at 10:16 am

    The price of gold is up strongly today to nearly $1,040. Gold and the S&P 500 had been tracking each other, but the S&P took a big lead over the summer. Now it’s close again. The S&P 500 is only about 14-15 points above gold.
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    In March 2008, gold reached a peak over $1,000 an ounce but it pulled back to nearly $700 by November. Since then, the price of gold has gradually climbed higher.

  • The Market Is Still Cheap
    , October 5th, 2009 at 12:10 pm

    Can profits grow faster than the economy forever?
    The answer is no, but profits can grow faster than the economy for some time and that’s pretty much what the market is expecting.
    For 2009, the S&P 500 will make around $55 to $60 a share. For 2010, earnings will probably be around $75 a share. For 2011, and now it’s starting to become hard to forecast, Wall Street sees earnings at $92 a share.
    If that’s correct, then the stock market is still pretty inexpensive. At 15 times earnings, $92 a share translates to 1380 for the index by the end of 2011. If we discount that by 8% to today (I get 8% by adding a 3% premium to 5% which is about where AAA corporates are), we get 1160. That’s more than 12% from where we are today.
    Of course, this assumes that there will be no double dip. If that comes along, then all bets are off.

  • Government report questions rescue claims
    , October 5th, 2009 at 8:09 am

    Remember when the government gave $125 billion to nine large banks and said not to worry because the banks were healthy? Yeah, about that.

  • Summers Profile in the New Yorker
    , October 5th, 2009 at 7:49 am

    I admit I haven’t yet read Ryan Lizza’s massive profile on Larry Summers in the New Yorker. When I say “massive,” I’m not joking—this thing is over 11,000 words.
    I hope to get to it later today.

  • Stocks Are Wrong But Roubini Is Right
    , October 5th, 2009 at 7:04 am

    Bloomberg quotes Nouriel Roubini, “Markets have gone up too much, too soon, too fast.” Well, that’s one way of putting it.
    I think it’s more accurate to say that Roubini’s forecasts were too bearish for too long.
    So how’s the market been doing for the last seven months?

    The global equity rally has added about $20.1 trillion to the value of stocks worldwide since this year’s low on March 9. Governments have poured about $2 trillion of stimulus into the global economy while central banks have cut interest rates to close to zero in efforts to revive growth.
    “In the short run we need monetary and fiscal stimulus to avoid another tipping point and to avoid deflation, but now this easy money has already started to create asset bubbles in equities, commodities, credit and emerging markets,” Roubini said. “For the sake of achieving growth stability again and avoiding deflation, we may be planting the seeds of the next cycle of financial instability.”

  • “California is on the verge of becoming the first failed state in America.”
    , October 4th, 2009 at 3:23 pm

    From the Guardian:

    California has a special place in the American psyche. It is the Golden State: a playground of the rich and famous with perfect weather. It symbolises a lifestyle of sunshine, swimming pools and the Hollywood dream factory.
    But the state that was once held up as the epitome of the boundless opportunities of America has collapsed. From its politics to its economy to its environment and way of life, California is like a patient on life support. At the start of summer the state government was so deeply in debt that it began to issue IOUs instead of wages. Its unemployment rate has soared to more than 12%, the highest figure in 70 years. Desperate to pay off a crippling budget deficit, California is slashing spending in education and healthcare, laying off vast numbers of workers and forcing others to take unpaid leave. In a state made up of sprawling suburbs the collapse of the housing bubble has impoverished millions and kicked tens of thousands of families out of their homes. Its political system is locked in paralysis and the two-term rule of former movie star Arnold Schwarzenegger is seen as a disaster – his approval ratings having sunk to levels that would make George W Bush blush. The crisis is so deep that Professor Kenneth Starr, who has written an acclaimed history of the state, recently declared: “California is on the verge of becoming the first failed state in America.”

  • 47% of Households Pay No Income Tax
    , October 2nd, 2009 at 3:15 pm

    The Tax Policy Center reports that 47% of American households pay no federal income tax. The original figure was 38% but it was bumped up thanks to the stimulus.
    Actually, the number is a little misleading since it excludes payroll taxes. The Tax Policy Center says that once that’s factored in, 24% of households are tax free.

  • Update on First Day of the Month
    , October 2nd, 2009 at 11:25 am

    Yesterday was a tough beginning for the month of October. September also started on a downbeat. However, the strategy of investing on the first day of the month has been a big winner this decade.
    Cumulatively, the market is up over 20% on the first day of the month while the S&P 500 is still down about 30% for the decade.
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