Filed under: Caterpillar (CAT), Citigroup Inc. (C), JPMorgan Chase (JPM), Bank of New York (BK), Lockheed Martin (LMT), Dow Chemical (DOW)

If you break the cycle of short-and-no-cover, you can win.

I know that wasn’t the purpose of the Anglo-French plan that we were dragged into, but it will be the effect, and the effect will be electric.

Let’s just take an obvious example: State Street (NYSE:STT). This is a longtime conservative trust bank that is an important custodian for life savings and for mutual funds. For a year now it has been under assault as an institution that has too much leverage in hard-to-value asset-backed instruments. The idea that a custodian could fall apart is something that shakes every money manager to his core and causes him to take his money out of cash and put it in T-bills. That’s been going on for ages now, and I know money managers who are scared to death to keep their money “in the system,” which is State Street, something that instills panic across the board.

When you hear that and you are a short-seller you know what to do: You plunk down $25 million to buy credit default swaps to wager against the firm’s debt, then you buy position limit puts and then you short the stock along with all of the other like-minded souls you talk to every day. You get the stock rolling downhill, then you buy a second set of swaps, paying double the price — doesn’t matter what the vig is when you know you are going to win — and then you call the media and you tell them that everyone’s pulling their money out of State Street and the credit default swaps are spiking huge and then the media goes out and reports on it. The company is helpless to refute it as the problem is being caused by the sellers because it is pretty much business as usual in a very tough time, and the stock gets hit again. Other hedge funds get wind, they short it down further, longs panic and then the credit agencies put the company on notice because where there is smoke there must be fire. Then the clients pull as much money out as possible and voila, the end of State Street.

We have seen this run several times. Frankly, I don’t know how State Street stayed in business.

Until this morning, the only policy that had been put in place to stop this destruction of capital by the shorts — and I fully concede that State Street may have made mistakes, but I will not concede that those mistakes should have made it be wiped out — was an out-and-out short-selling ban. That was ludicrous, but what do you expect from this SEC that eliminated the uptick rule right in the teeth of the greatest bull market and allowed naked shorting to go on illegally?

Continue reading Cramer on BloggingStocks: The shorts got booted out of paradise

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Filed under: Microsoft (MSFT), Time Warner (TWX), Newsletters, Stocks to Buy, Green Stocks

This post is part of a series in which TheStockAdvisors.com asked financial experts to name their top stock pick if McCain or if Obama wins the election.

“It looks very much to me like there will be a rough few years ahead in the United States, whichever candidate wins; however, if Obama wins, we see opportunity in select stocks such as Microsoft, Time Warner and First Solar,” says Martin Hutchinson in The Money Map Reporter.

“If Obama takes the White House, interest rates will surely rise. And the major beneficiaries of a policy of higher interest rates will be companies with large piles of cash, who will earn better returns on that money even as they discover cheaper opportunities to deploy it as prices of highly leveraged competitors crash.

“Microsoft Corp. (NASDAQ: MSFT), for example, with $23 billion of cash and negligible debt, should find many ways to deploy that capital and convert it into profitable business opportunities.

“Another sector that might benefit is media, which always finds it easier to sell products internationally when the United States has a popular “rock-star” president than it does when an unpopular president occupies the White House.

“You might look at Time Warner Inc. (NYSE: TWX), which is largely concentrated in visual and Internet media, without investments in the rapidly declining newspaper sector.

“Finally, you might look for a new energy company that could benefit from Obama’s proposed $150 billion alternative energy fund.

“One possibility would be First Solar (NASDAQ: FSLR), though — at 39 times earnings and with a market capitalization of greater than $20 billion — the stock certainly isn’t cheap, despite the company’s global reach.”

Steven Halpern’s TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation’s leading financial newsletter advisors.

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What may be more amazing than one Olympian swimming for 8 gold medals is the continued revisionist delusion of our former Federal Reserve chairman Alan Greenspan.  Greenspan in typical revisionist fashion, is now stating publicly that the government should have allowed Fannie Mae and Freddie Mac shareholders to be wiped out while breaking up the […]
Related Posts:
■Housing Perception Foreclosing on Reality: The Fundamental Housing Attribution Error.
■Parallel Universe: Housing Still Hurting on Main Street while Wall Street Celebrates.
■The Abyss is Deep: The Housing Abyss is Deep: 4 Major Reasons Why Housing in Southern California is Nowhere Near a Bottom.
■Foreclosure Nation: More Like Foreclosure States. 4 States Made up 50 Percent of all Foreclosures and Distressed Property Action.
■Foreclosures jump statewide by 40% in California in just one quarter! Welcome to California’s Gold!

What may be more amazing than one Olympian swimming for 8 gold medals is the continued revisionist delusion of our former Federal Reserve chairman Alan Greenspan.  Greenspan in typical revisionist fashion, is now stating publicly that the government should have allowed Fannie Mae and Freddie Mac shareholders to be wiped out while breaking up the GSEs into 5 or 10 different units.  Thanks for raising your voice now after the fact!  He is a master of covering his tracks and you need to remember that he was a champion in pushing and cheerleading adjustable rate mortgages which have now become the step child and shame of the housing market.

Amazingly Greenspan is saying the right things in certain respects yet this is only to cover his silence during the actual bailing out of Bear Stearns and also, Fannie Mae and Freddie Mac through the Housing and Economic Recovery Act of 2008 otherwise known as the Crony Capitalism Bill.  Here is what he had to say this week:

“(Reuters) They should have wiped out the shareholders, nationalized the institutions with legislation that they are to be reconstituted… as five or 10 individual privately held units,” which the government would eventually auction off to private investors, Greenspan said in an interview with the Journal.”

Maybe he should have said something during the public hearings.  This is what he had to say about Bear Stearns:

“There’s no credible argument for bailing out Bear Stearns and not the GSEs,” Greenspan told the Journal in an interview, which was reported on Thursday.”

Baloney.  This guy is on a legacy tour trying to revise history.  He is saying the right things but his action speak otherwise.  Here is his prediction on the housing market:

“Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009,” he said.

But Greenspan cautioned that even at a bottom “prices could continue to drift lower through 2009 and beyond.”

To a certain extent I am starting to understand the interworking of the Fed.  Obviously as a lay person like most of you, much of what goes on behind closed doors is a mystery to most.  In fact, that is part of the mystique of the Federal Reserve that when they speak, a fleet of economist are sent out trying to decode the hidden meaning in the talks.  These economist and analyst then try to bring the conversation to the public with a more down to Earth language.  It is ultimately a sham.  The Federal Reserve as we now all know is rather impotent in this credit crisis.  The one thing Alan Greenspan did have was the ability to speak in a way that moved markets drastically.  As you may have noticed, Federal Reserve meetings don’t carry that power anymore.  The history of the Fed is unknown to most of the public not because the information isn’t there, but most simply do not care.

It is becoming rather apparent that many saw this market imploding yet did nothing.  The logic is rather simple and not necessarily conspiratorial.  The boom of the housing market brought untold riches to many people.  The solution was simple.  Stop the massive and rampant fraud and speculation.  Hike rates up.  Yet these acts would assuredly pop the bubble and blame would be placed on whatever agency or person that took these actions.  The politics got in the way of good policy.  Even during the Great Depression, the Fed was voicing concern in 1928 and 1929 wanting to raise rates and attempt a reigning in of speculation but Wall Street vilified the Fed and they backed off.  No one wants the punchbowl to be taken away and the public got drunk off easy credit.

Sadly this bubble at least on a human nature level is no different from Dutchmen buying tulips, or people investing in Florida real estate in the 1920s, or those trying to get rich quick on any company with a dotcom during the 1990s.  People in speculative manias want to get rich as quickly as possible with the least amount of work.  This idea is appealing to the dark green matter in our psyche that fuels those that buy lottery tickets.  There is an easy meal ticket and all it takes is a little bit of faith and a small payment.

Just like those that saw the oncoming collapse during the late 1920s, many saw it this time around too but realized they did not want to be the one to take the flak for bursting the bubble.  So what happens?  The bubble infects the psyche of the populace and runs to a point where it is simply unsupportable and implodes on itself.  Many are too blame.  Some more than others.  Yet at this point no single organization takes the entire blame.  The games then begin and the mess is much larger than say someone stepping in during 2004, causing a pullback and correcting the ship before it hit a massive iceberg.  At this point, the ship has careened into shore and now it is only a matter of who is to blame for this?  Certainly Greenspan is politically savvy and realizes he needs to get out in front of this ball.  He is a reed in the wind.  During the height of the bubble he fed into the public speculative fervor and championed adjustable rate mortgages and made credit much cheaper through lowering the Fed funds rate.  Now, it is time to spank Bear Stearns on their Fannie Mae.

Look at the current rally today in stocks.  This is a perfect example of delusion.  Today the nationwide foreclosure filings were released and guess what?  They are the highest ever!  Take a look at this chart:

This was the largest number of foreclosure filings ever recorded yet if you look at some of the financial and housing stocks, they rallied because sales increased a bit.  Again, you should read this article to give you an idea of how these numbers are being massaged and you’ll quickly realize that things are not improving.  And you’ll also notice how Greenspan talks about national housing prices bottoming in 2009.  Which is a nice way of covering yourself since 5 states make up 57% of all foreclosure filings.  Places like California won’t be hitting a bottom until May of 2011 and the data points to this.

Here is a breakdown of foreclosure filings from the top 5 states:

Clearly states like California with $300 billion in pay option ARMs set to hit their anniversary dates is in a much more precarious situation than say states that have homes priced within the $100,000 to $200,000 price range.  Even with the massive 38% drop, California home prices are still $368,250 while the median household income is $53,770.  This ratio is simply unsupportable even at current levels.

I’ve noticed a few mainstream articles cover the so-called shadow inventory issue.  We talked about this in the previous article but I’ve raised this issue for months on end.  Call it what you want but this is shady manipulation of the market and toying with nuisances of the MLS.  Want some proof?  Take a look at the July 2008 foreclosure filings for California:

July 2008 Data
REO:               23,406

NTS:                12,506

NOD:              36,373

Approximate California Inventory:    310,000

Total Southern California Foreclosure inventory today:    8,548

June 2008 sales California:     35,202

June 2008 SoCal sales:            17,424

Think about that for a second.  Southern California made up 49.4% of all California sales in the month of June.  We had 23,406 homes go back to lenders in July and 12,506 trustee sales yet the MLS foreclosure sales are only at 8,548 for Southern California?  Let us assume that out of 35,912 homes that were foreclosed in July half are in SoCal.  That would push up the inventory numbers by 17,956 just in one month!  Keep in mind that we are using multiple sources to look at information from Realtytrac, DataQuick, ZipRealty, and yet from most places that do track foreclosures, the numbers are steadily rising yet somehow, the MLS data doesn’t reflect this.  In fact according to their data months of inventory is actually getting healthier.

It is absurd.  REOs are being understated to the point of being criminal.  Yet in manias people want to believe fudged data just like they saw nothing wrong with subprime lending.  When you look at various sources, isn’t apparent what is going on?  Greenspan should win a medal for revising history.  Clearly people are now trying to underplay the actual market data and want to believe that housing is at a bottom.  Anyone with an ounce of logic can see the numbers above and see something is clearly wrong.

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Olympic Gold Medal: Greenspan Tells us Housing will Bottom in 2009. Meantime Foreclosure Filings hit Historical Record.

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Related Posts:
■Housing Perception Foreclosing on Reality: The Fundamental Housing Attribution Error.
■Parallel Universe: Housing Still Hurting on Main Street while Wall Street Celebrates.
■The Abyss is Deep: The Housing Abyss is Deep: 4 Major Reasons Why Housing in Southern California is Nowhere Near a Bottom.
■Foreclosure Nation: More Like Foreclosure States. 4 States Made up 50 Percent of all Foreclosures and Distressed Property Action.
■Foreclosures jump statewide by 40% in California in just one quarter! Welcome to California’s Gold!

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A guest post by new Blownmortgage.com contributor, MG Dungan.  MG has gone from Wharton to Wall St. to real estate to Blown Mortgage. 

Update: Bill passes 263-171. See who voted yea or nay.

The Emergency Economic Stabilization Act of 2008 failed in the House—225 to 228— on September 29. In an unprecedented and unconstitutional move, the bill was sent to the Senate, loaded up with pork and overwhelmingly passed—75 to 24— with no substantive change to the provisions that caused it to be rejected by the House.

So, we want to know, where’s the stimulation?

What it won’t do:

1. Stimulate employment:

The plan has no direct affect on employment. Buying old bad debt from banks in exchange for brand-new, at-least-temporarily-good new debt does not decrease leverage, does not increase the money supply, and does not motivate banks to start lending. Really, who are they going to lend to in a rapidly deteriorating economy?

Further, it has little direct affect on employment other than on the Wall Streeters who will manage the pools of money.

It does not lighten the burden on Americans who are already in deep financial trouble; in fact, it increases the burden. The Treasury and Fed do not have an extra $700bn; they will have to borrow it. This bailout, the first tranche—not the whole thing, the first tranche— of which is $700bn, will be the largest tax increase in history.

(more…)

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Filed under: Forecasts, Recession, Financial Crisis

U.S. investors have just experienced their worst point-loss week in history, as measured by the Dow, as the nation, and the world, implements policies to end the global financial crisis.

In times like these investors/readers turn to the likes of Warren Buffett or George Soros to analyze the financial and economic state of things.

However, today we turn to another trusted source for time-tested counsel, advise, and wisdom: Lawrence Peter “Yogi” Berra, retired Hall of Fame catcher for the New York Yankees, owner of 10 World Series championship rings, and author of ‘yogiisms‘ — incisive malapropisms that reveal eternal truths.

After Yogi came out of a hitting slump in the Yanks’ pennant-winning season of 1952, a New York newspaper reporter asked Yogi if it was his bad knee that had caused the slump to start earlier that month.

“No it wasn’t my knee, it was my head,” Yogi replied. “Ninety percent of this game is half-mental.“

Yogi’s adage applies to economics, as well. Ninety percent of this economics game is half-mental.

That’s not to say that toxic assets are not real, or that banks do not have to be recapitalized, or that hundreds of thousands (if not millions) of mortgages don’t have to be refinanced. These are all objective conditions that require policy attention.

But those involved in business and economics know that the first step toward recovery is a psychological step. It’s when an institutional investor says, hey, this is a good time to diversify our portfolio and get those bonds from IBM (NYSE: IBM). Or when a mutual fund decides that Time Warner (NYSE: TWX) is a sure-fire value at $9 a share. Or when a bank says it can’t offer a $2 million loan for an industrial plant expansion, but it can extend a $1.5 million loan. Or when a family says it can’t afford to move in to that larger home that it needs for its growing family, but it can afford to add a bedroom to their current house.

All of the above are shifts in psychology — mental shifts that will do every bit as much toward inching the United States back toward financial and economic health as the essential intervention of the U.S. government.

Economics Analysis: Yogi is right: Ninety percent of this economics game is half-mental.

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I chuckled when I saw this. Jack Daniels ad prominently featured on the day the DOW dropped 800 points and fell below 10,000 for the first time in 4 years. (Click the image for the full size.)

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Filed under: General Motors (GM), Morgan Stanley (MS)

Today had all the earmarks for a weird trading day as banks, bonds, Canadians, and Japanese weren’t a part of the market due to holidays. But stocks were open, and for once it’s a great thing they were open. The DJIA put on a massive rally after overseas markets reacted favorably to US and globally coordinated bailouts.

Below are the unofficial closing bells prices:
DJIA 9,390.08 +938.89 +11.11%
S&P500 1,003.70 +104.48 +11.62%
NASDAQ 1,844.25 +194.74 +11.81%
10YR T-Note 3.8610% (Closed Today)

52-Week Lows
Top Analyst Upgrades

General Motors Corp. (NYSE: GM) was up on talks that it is actually considering a mega-merger with Chrysler in a deal where Cerberus would keep some stake in the combined auto company and perhaps take over the rest of GMAC as part of the deal. Shares rose 33% to $6.52 on the day.

Continue reading Closing Bell: Hail to the bull! Market moves up!

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