KaboomCo
Bill Gross was criticizing a lot of people yesterday, but maybe he needs to look in the mirror because now we know why he is so adamant that the government bail out Fannie and Freddia. From a Bloomberg story:
“About 61 percent of Gross’s holdings were mortgage-backed securities as of June 30, mostly debt guaranteed by Fannie, Freddie or Ginnie Mae, according to data on Pimco’s Web site.”
If Gross is so smart, why is he begging for the US taxpayers to bail him out? If I had any money in Pimco, it would be bailing the hell out.
We’re into the third year of the mortgage crisis, and this guy still owns hundreds of billions of mortgage-backed securities??? Pimco sponsors CNBC, and the Pimco guys are treated like gods there, but if these guys aren’t morons, who is?
Pimco? How about KaboomCo?
If we taxpayers bail out Gross, there should at least be some sort of hazing involved.
Shortly after I wrote the above, the Wall Street Journal reported that Pimco’s CEO had resigned:
“Bill Thompson, 63, a 15-year Pimco veteran, will retire from his co-CEO post at the end of this year. He says one reason is because he wanted to leave at the top.”
“At the top” indeed! Talk about a Freudian slip!
Doug “Kaboom” Kass
At 7:57am Thursday morning, Doug “Kaboom” Kass called the bottom in this bear market:
“This is what market bottoms look like.”
Then the Dow plunged 345 points.
Make sure to take a look at Danny’s study of “all sectors red” days like we had yesterday.
Watch the comments section for updates throughout the day.
Man, I missed that ICE move today! Up over 5 bucks.
Art Casin looking for a big down day monday then rally Tuesday.Kramer just said selling is all done for now,take your pick!!
Next move up to resistance for SSO is the 30 minute time frame. Around $58.00. That is if it continues, of course.
I said resistance, I meant 36 MA. I don’t think that is resistance, just a reference point.
its 2:00 lets see this baby bounce
180 point bounce isn’t enough?
This may end up being an up day in a down market. The SPX daily candle didn’t move the stochastic or MACD up today.
Also, I like trading banks, but will most likely back off after today unless I see something really nice happening. It will have to be a great setup to jump in.
Calm before the storm and all that. Although I don’t like to think with any bias. I’ve out-smarted myself too many times in the past. Solid analysis=okay.
just seeing multiple stoch crosses on multiple timeframes for SKF.
potential crosses at least until all the candles close.
Charlie;
Yep. All they need to do is begin clearing those 9 MAs and we’ll have something.
Thanks for the “heads up” Charlie. Let’s see where it takes us.
I think the markets may do a little bull flag to resistance to work off their oversold nature. SPY 125.3 anyone?
Hopefully that happens George
Or maybe not even a flag. May this bear flag is the trip up.
Or maybe everything just goes straight to hell LOL. Tricky here.
I do think the VIX needs to pull back to about 22ish, however, to move up solidly. Yesterday was the biggest VIX move strength-wise that I know of in this whole bear cycle (at least according to my measurements).
During yesterday’s carnage, the XLF didn’t even get near the lower end of its trading range. The Q’s on the other hand, knifed right through a huge support area. All I’m saying is that it is easier to short things that are weak. The XLF has been relatively strong. Why fight that when there are easier targets? When a lion is surrounded by humans, it always tries to escape by lunging at the weakest looking hunter.
Matt you are on the money. I think the trade is long XLF on a bounce and short SPY, QQQQ, XLE, and XLB at resistance.
That’s just my opinion, but even if the fundamentals don’t show anything – at least not yet – the charts sure do.
The short-term model that I use (STEM.MR) shows that SPY and QQQQ are now well off of their oversold conditions. They are about halfway up to overbought country, so there could indeed be more upside. However, the odds are no longer stacked in favor of long-side trades as they were this morning.
What is STEM.MR?
Matt, the next wave down will be led by those who have benefitted recently from the fast money fleeing commodities. Techs, retail and why not healthcare?
Finance will not stay flat because all shoes that drop will cost some banks money. The are not going to meet revenue expectations. And they are under severe stress – RBS just called for Barcleys to raise something like 10bln pounds. Oh, they all have to refinance. Which got way more expensive.
They might not lead the market down but they are not in a position right now to beat expectations. Look at what happened to Commerzbank who just bought Dresdner. Unfortunately they will rely heavily on external financing. Dropped 15% in three days, broke all support lines – so much for creating the second national banking champion in Germany…
George,
Thanks for your comments today. I’m still studying your method and starting to get the hand of it. How do you choose which stocks to play each morning? Do you look at list of high-percentage movers? High-volume?
Matt
Zen,
STEM.MR is one of the models that you get when you subscribe to:
http://www.sentimentrader.com
It’s a very good model.
Matt
Matt, short termish you’re right. But things will change again
Charlie;
That move on the 1 minute (crossing the 9 MA) right at 3:00 est. That was the entry point.
However, seeing that happen after the fact, that would have been the time to look at the other timeframes too see if they meet the requirements WITH the 1 minute holding up.
It would have been a buy at the 3:00 time frame – all the conditions were met, but would have exited about 3:15.
Important to get in at the 1 minute bottom stochastic.
George
Yerk,
OK, so we agree that tech may lead the next wave down?
Matt
XLF is up over 3% .. that is pretty crazy. I can see what you mean Matt when you say that there is strength in financials.
yep (isn’t that the current wave
Q’s are bringing up the rear today. And I don’t like the TRINQ pattern; it looks like the big dogs are selling into this snap-back rally.
Matt I hate to bug you on your blog, but are the other tools at sentimenttrader good? I think Tim Ord mentioned it in a book of his I read recently.
Thanks for the link Matt, and once again, excellent commentary by everyone here.
I am intrigued by techs being the new whipping boy, I am going to do more work on that.
Nobody else is a believer in shorting XLB and XLE maybe? Maybe they are too dependent on the dollar?
I’m still up in my core SKF. That downage was offset by my BBT trades, at least most of it.
Hey Charlie;
I’d be in better shape if I would have followed my method in SSO. That’s okay though. Still a profitable day.
Hey George,
I presume you’re hung onto your SKF core? That was pretty rough.. a $10 + move from the highs to the lows of the day.
Zen,
Yes, SentimenTrader has an incredible amount of excellent statistical data in addition to its models. It’s only $25 a month or so. The guy who runs it, Jason Goepfert, called the bottom in July, and just recently called the top at 1300.
Matt
Charlie;
Yes. Still have the core. I’m not worried though, because I play counter-trends plus the inverse. It all balances out and in fact, comes out better that way.
Like, yesterday, I played SKF to the upside and made as much as it was down today. So right now, I have a free trade so to speak.
Simple mind, simple methods. HEHE
George,
did you just notice a huge dip in SKF right now in afterhours? Seems like Gov is providing a backstop to FRE/FNM?
more rumors and LEH bailouts..
Charlie,
That dip in SKF doesn’t have much volume associated. Monday might be very interesting.
I didn’t see that dip in SKF. One thing I don’t worry about is after-hours trading or pre-market. Affects the opening often but may not carry through the day.
IMHO, the lower SKF goes, the better. That goes for any stock or index. Those create the best opportunities.
I used to get “stuck” in a stock (no money management). I would play the counters to where I got even or better. I like doing that although it is dangerous at times. That won’t work for a stock that is doomed. I haven’t gotten into those yet. That’s why I’m mainly in ETFs now except for a couple of favorites like BBT, ICE, NCC (not now though), and a few others that move well.
Often, I just keep SSO and SSD on my screen and play them while keeping an eye out on one of my favorites. You can make a good living trading those two.
Matt,
We may have got the Exhaustive Gap-Down today with a midday reversal on the Q & indices. Near term could be ready for a retracement rally. What’s your thought?
Didn’t the Q’s crap at the close?
i sold my smidge of SKF early today…seeing it down now and even more in after hours…wondering if I should autopilot buy it back cheaper on Monday than where i sold…
Matt, are you holding any SKF or related shorts/puts on the financials ?
well, not just SKF up in after hrs but the q’s as well:
POWERSHARES QQQ TR 1(NasdaqGM: QQQQ)
After Hours: 43.93 0.48 (1.10%)5:19PM ET
The close may be the selling before weekend as trdrs have been spooked by the drop this week and wouldn’t want to hold. How Mon opens will determine if we had the exhaustive gap today. Maybe Matt can tell us the reversal today was convincing by looking at other stats.
FANNY & FREDDY getting hammered AH Fanny down 20% how will the stong sector bode for Monday?
There is WSJ story about solution to FNM and FRE coming out soon – maybe this explains part of the action…
http://online.wsj.com/article/SB122064650145404781.html?mod=hpp_us_whats_news
And here comes the other hint at why to buy banks now:
“Companies in the S&P 500 are forecast to report profits in the fourth quarter that are 42 percent higher than a year ago, the biggest increase ever. Financial company earnings are projected to rise more almost five-fold, while income at mining and chemical companies may increase 35 percent.”
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apcAFrA5Cg.A
Have a great weekend
And who ya gonna believe:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6BxAKLBZvII&refer=home
“The best already may be over for the U.S. stock market this year.
The Standard & Poor’s 500 Index, which had the worst first half since 2002, added 0.2 percent this quarter, the only gain among the world’s 10 biggest markets in dollar terms. Shares in the benchmark index for American equity climbed to an average 25.8 times reported profits, the highest valuation in five years. The last time that happened, the S&P 500 fell 38 percent. ”
Bloomberg vs Bloomberg ?
So SKF up BIG TIME monday if these 2 fail?
HMM opinions guys
Fannie and Freddie are down because traders think their common stock might get wiped out in a deal. The XLF is up because traders think the deal will remove a potential catastrophe. Of course, Barron’s had a similar article a couple weeks ago. The WSJ article had only two details: there was a meeting, and Freddie changed some corporate bylaws. Maybe the meeting was just a response to Bill Gross’s criticism; to make it look like Paulson and Bernanke were doing something. The deal may get dragged out until after the election. After all, a gazillion dollar bailout of rich bond holders and sovereign wealth funds would provide the Democrats with a lot of political ammo.
Kevin,
I will probably be posting something on this morning’s action over the weekend.
Matt
after,
I was questioning the wisdom of shorting the financials earlier today, so as you can imagine, I am not short them now.
I went short in the S&P futures today, and bought some QQQQ puts. I will add to those positions into any rally early next week, unless there is explosive volume.
Matt
Yerk,
The fool analysts just haven’t revised down their 4Q estimates yet. They will capitulate soon enough.
Matt
I wonder if “It’s the economy stupid” (James Carville) is applicable now. That is to say, the current administration is pressured to make it look good before the election.
They better hurry – not much time left.
well 11th bank failed. WOOOT
http://bloomberg.com/apps/news?pid=20601087&sid=adweqGJO2lNc&refer=home
Silver State, with $2 billion in assets and $1.7 billion in deposits
K,
Yep, regardless of what happens with Fannie and Freddie, the credit contraction will roll on. The business cycle can not be materially altered. It will contract until it is done contracting, and the end is not yet in sight.
Matt
Here is an interesting fact from the Bloomberg article:
“Mudd and Syron must approve of any government intervention under the law, unless the FHFA declares that either firm has insufficient capital. The FHFA was scheduled to release its own assessment of the companies’ capital levels as early as this week as part of a quarterly appraisal of their finances.”
Politically, it is not possible for the CEO’s to remain on the job with their huge salaries. The taxpayers will not tolerate that, so they have to go. However, Paulson and Bernanke cannot make them go unless they can prove the “capital levels” case. And that does not appear to be a done deal.
Over the weekend, Paulson and Bernanke will probably be trying to convince Mudd and Syron to abdicate. And since Mudd showed up at the meeting on Friday with his attorney, it doesn’t look like he will be going quietly. So, maybe there will be no deals, or just one with Freddie while Mudd holds out.
Fannie and Freddie Gov’t taking over this weekend….details to come stay tuned
and yahoo has it on front page
http://biz.yahoo.com/ap/080905/mortgage_giants_crisis.html
AWESOME LOL
Jim Cramer was saying today that the hedge funds normally finish their selling to meet redemptions by the fifth business day of the month, and thus, the selling is now complete.
Cramer is simply in denial. The wave of selling that he says has just ended did not occur in a vacuum. Any hedge fund with large tech holdings just took a huge markdown even if they are not getting any redemptions. Once their investors see the results, the next wave of redemptions will begin.
I have no doubt that there are plenty of big funds salivating over a Fan-Fred rally so that they can sell into it and liquidate at optimal prices.
Money in hedge funds is not insured by the FDIC, right? Investors in hedge funds know that if they are not the first out the door, they may never get out.
Cramer also trumpeted how strong the market was because it didn’t crash today after the jobs report. But of course, it crashed yesterday in anticipation as it often does.
The jobs report carries a lot of weight. It is not forgotten the next day like other reports. It is the number-one indicator on the economy for most traders.
The big money wants OUT of this market, and unless there is a massive surge in volume on any Fan-Fred rally next week, it will be a dead-cat bounce.
I have a feeling that the FDIC would be shutting down more banks if they had the manpower. One per week is probably all they can manage right now, though they are expanding their offices, training up new “seizers”, and bringing some old ones out of mothballs. Maybe they will be able to do two per week soon…
Matt why would you expect a FRE-FAN rally,there is a lot speculation that the common shareholder gets 0
I meant a general stock-market rally based on a Fan-Fred deal. FNM and FRE may go to zero, but the rest of the market would rally. That’s what happened after hours on Friday.
The New York Times reported:
“Under a conservatorship, the common and preferred shares of Fannie and Freddie would be reduced to little or nothing…”
The common shares are not important, but if the preferred go to zero and stop paying dividends, that would be a disaster for a lot of banks. Many banks own huge mounds of the preferred and depend upon the dividend for a large chunk of their income. The shrapnel from this deal could be quite deadly.
The Washington Post reported that the preferred would be protected, so it looks like most of these stories are just speculation.
Matt,
with regard to the question which sector will suffer most in the future. Here’s a comparison of the gains of several etfs since the market bottom in Sept. 2002 (or Jan 03 if they bottomed later). Energy and emerging markets are on top, technology third.
low 09/02 today increase
xle 21,36 68,42 320%
eem 11,57 36,96 319% (series starts 04/03)
qqqq 20,35 43,45 214%
xlb 17,55 37,22 212%
iwm 34,65 71,64 207%
xlu 17,46 35,39 203%
xlk 11,9 21,52 181%
xli 19 33,76 178%
xlp 18,51 28,32 153% (low in 01/03)
SPY 81,79 124,42 152%
rth 65,72 96,85 147% (low in 01/03)
iyr 44,69 63,46 142% (series starts 09/03)
smh 18,71 26,5 142%
xlv 22,67 31,85 140% (low in 07/02)
xly 21,65 30,28 140% (low in 01/03)
hgx 100 129,01 129% was below 02 low… (low 1/03)
rkh 92,02 107,73 117% was below 02 low…
xlf 19,31 21,74 113% was below 02 low…
Interestingly xlf and rkh as well as hgx have bounced a bit after dropping to / below 02. If the market assumes that 02 is a likely target area for this bear, one could ask why the 02 lows should be the right valuation level for xlf and hgx given that their current situation and outlook are much worse than in 2002. Looks like a moving target to me – and will the others drag with them as well.
And the complexities of turning around a financial system are far more significant than deflating a bubble in internet stocks. It will be interesting to see what kind of reimbursement the banks will get for their shares as they will have to immediately amortize their holdings. JPM led the way, but they forgot to write down the second 50% lost. From the top of my head interest payment on some bonds is linked to shares paying dividend so there are issues as well.
FRE & FNM—there is no way the Gov’t will even haircut the PRF’D , can’t banks use that as good capital….. Gov’t will put in some type of Super PRF’D that will actually strengthen the banks PRF’D …the dividends may have to accrue on the PRF’D until the Gov’t is made whole or re-capped out of their stake but the old PRF’D will be live.
The board of directors is elected by the common shareholders and I don’t see them riding their stake down to zero whilst protecting the preferred stock… Issuance of a new class of stocks is to be decided upon by the board and not the government… I’m only sure that some legal action will ensue (and the market will go up)
Yes a BOD is elected by the common, yet the BOD has a fiduciary responsibilty to protect ALL holders up and down the capital structure This is done in the best interests of the Company. In the end the BOD is there to make sure the Company an as entity survives and flourish.
The Gov’t will go the BOD with a proposal for a capital infusion….the BOD can say no and go find a better deal—doubtful —or they can accept the deal in the best interests of all stakeholders and the Company and if the equity get wiped out, equity will sue and 10 yrs later may or may not recover something.
BTW if you subtract the “soft” assets off the balance the negative equity is insurmountable…..nuff said lets watch the action on Monday AM
Yerk,
Thanks for the list of ETF’s. That’s a good approach to discovering where the sharpest corrections may come. The XLU for example has a large, and blatant, head-and-shoulders pattern on its weekly chart, and it looks like it decisively broke the neckline last week. It was the worst sector on Friday. In my trading program, I have added a screen named “targets” with the sectors that top your list.
Yes, the banks and homebuilders are a mess compared to 2002. I just think that hyper-focusing on them may cause me to miss better opportunities.
Matt
I suppose the market could bounce.2 ago weeks FRE & FAN said no intervention would be needed,now 2 weeks later the government has to jump in to bail them out at the expense of the taxpayers and common shareholders?? So the financials should go up??? Does this not show the desperation of the situation?? Buy Lehman stock so the government can bail them out to,oh but your shares are going to 0,what am I missing here?
The New York Times said most or all of both the common and preferred shares would be worth little or nothing.”
http://www.bloomberg.com/apps/news?pid=2...
What did Paulson say? If congress approves the 800 billion dollars it will instill investor confidence and it is highly unlikely that the money would be needed.
Liar or idiot?
The Treasury doesn’t get the $800 Billion until 1 October so why is Paulson moving on the 2 GSE’s now?
Could it be because the mortgage situtation is much worse than the numbers indicate? Is it possible that Paulson and company know that the 2 GSE’s will be swamped in the next few weeks? There has to be some dire reason for moving so early.
Hold on to your seats ladies. The devil is in the details and my guess is when the details are released it will be the equivalent of a financial atomic bomb.
“Fannie and Freddie need to sell billions of dollars of bonds each month to pay off maturing debt. As of mid-August the companies had $223 billion of debt to refinance by the end of the quarter.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeBCZUDSozyM&refer=home
So they had to move now…
They are making noise now because the market crashed on Thursday, and Bill Gross blamed it on Paulson. Even if they can’t get a deal done on the weekend, they will continue yapping about it to try and talk the market up. So far, the yapping has worked in Friday’s after-market trading, but if there is no deal this weekend…
Yerk,
Last I heard, Fan-Fred’s recent bond auctions didn’t go too badly. I believe that they had to pay higher-than-usual rates on the last one, but it wasn’t too alarming.
But if Bill Gross is going to lead a buyer’s strike, then perhaps the next auction would be a disaster.
This thing is like a shark that has to keep on swimming. How in the hell will they ever figure out a way to keep feeding this monster? How does the dollar survive a massive bailout? Even if Bill Gross will buy the new paper, will his investors keep their money in his agency funds?
Matt