Futures ticking down even though primary driver, Oil, ticking up and TXN gives fresh impetus to buyig the qqqqs as a host companies can have their numbers raised off this midquarter update. Seems fatous and wrong as usual...
Position: none
I again, reiterate, that if there is no new news, why not take the futures now...
Position: none
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Tom Graff
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| Treasury Bonds Higher, Steeper |
6/9/2009 8:03 AM EDT
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Treasury bonds are higher (in price, lower in yield) this morning, although the 10-year is off its overnight high. The 10-year is at 3.84%, traded as low as 3.81%. We made a new intra-day low on the current 10-year at 93-16+ (yield of 3.92%), so we'll see if that can hold. The next critical technical point is probaly 4.08%, which was the post-Lehman/AIG high in Treasury yields. The yield curve is 2 basis points steeper. Remember, bull steepener indicates a reduced expectation of near-term Fed hikes.Meanwhile, swap spreads are a good bit tighter, and 10-year swaps now 3 basis points tighter. 10-year swaps are important to watch, as its an indicator of mortgage servicer activity. We've seen swap spreads move from a low of 8 basis points on May 19 to a six-month high of 43 basis points yesterday. I think swaps can move a good bit tighter if servicer activity stabilizes.
Position: None
951 = 95.60
945.50 = 95
942 = 94.65
938.50 = 94.35
935 = 94
930 = 93.45
928 = 93.25
Position: Short SPY
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Tom Graff
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| Corporate bonds tighter |
6/9/2009 9:20 AM EDT
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Momentum in corporate bonds remains in tact. Most issues unchanged to tighter. Its the same story, real money wants to buy, and uses any back up as an opportunity. There is no fear anymore. Amazing how quickly everything can change.I think it will take a sustained sell-off in stocks to spook the corporate market wider. Otherwise, buy on sell-offs. Only new issue announcements so far are from Fortune Brands and University of Texas BABs. Never liked Fortune Brands too much. Always seemed like they didn't know what business they wanted to be in.Don't know how the corporate bond market would react to the Supreme Court striking down the Chrysler deal. I'd think that would be an adverse economic impact, but its worth noting that the abrigation of secured holder rights sent chills through every corporate bond investor.
Position: None.
Throughout the month of May, the e-mini was stuck in a roughly 50-point channel (925-875). Now we seem to be stuck between 950 and 925 ... a 25-point channel. We are going to break out one way or the other, and I continue to watch the energy sector and the TLT for a hint as to the direction.
Although the iShares 20-Year-Plus Treasury ETF (TLT) will need time to put in a base, I think there is a good chance its three-year cycle will continue and a meaningful low will be put in shortly. I also buy into the argument that forces other than demand are driving oil prices higher, and that makes me doubt the sustainability of a move through 70. For now though, the momentum in TLT is down and in crude it is up...
The bulls should have only one thing on their mind: Get us through 951 and sustain it. We have moderate resistance at 942, and then it's back to strong resistance at 945.50. If the bulls are able to pull it together and sustain a move above 945.50, they can tackle strong resistance at 951 (the top of our current range). Traders must continue to have the utmost respect for the possibilities of late-day squeezes ... regardless of why they occur.
If the bears want to sidestep another bloodbath, they need to push the e-mini back under moderate support at 942 and 938.50 and target strong support at 935. A break of 935 sends us moderate support at 930 and 928 ... the bottom of our range.
Position: none
My general take on things right now is that we have seen a nice lift in asset prices, but commodity prices are lifting more than stock prices and economic activity for that matter (i.e. inflation). I also read how the fundamentals don't justify $70 oil. The article cited low demand and high inventory levels and the fundamental culprit for this justification. I understand the justification, but I also understand that the supply demand situation can change rapidly the other direction. Plus with the government printing like they are, it makes the future for energy very interesting indeed.
Position: None
Hilariously delayed buying at the open of the session. It was rather strange, given that the market just wants to see the banks, the Nasdaq and the oil market up. We got the trifecta, so what the heck was keeping the darned thing down?
Position: none
Fed Officials appear to have reluctantly eased attempts seeking authority to issue their own bills as Congress firmly reasserts its authority. Bernanke didn't cite such as a means of absorbing and managing liquidity.
Currently Congress limits Treasury debt issuance. Were the Fed to issue its own bills, would Congress try to cap issuance or would this interfere with the tactical needs of the central bank? Would the Fed's bill issuance compete with the Treasury's?
Although the market is precociously pricing a tightening move by years end, the focus on officials and market participants will likely increasing turn to exit strategies.
Position: None.
The Treasury will allow ten banks to repay $68 billion in TARP money. Now they can get about to the important task of paying all that "talent." So much talent; without it, who knows what could have happened?
We are in an interesting phase of government-business history, aren't we? Certain programs are either not being subscribed to or have failed to be launched. The TARP itself, defeated once and never popular on Main Street, was viewed initially as a honeypot and now is viewed as the equivalent of carrion on the balance sheet.
Only the government could find it hard to give away so much money. Of course, only the government could start printing money to buy both Treasuries and mortgage-backed assets and watch their price go lower.
Position: None
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Jeff Bagley
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| Look for Further Tightening of Corporate Credit Spreads |
6/9/2009 9:55 AM EDT
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Tom, I agree with you 100% regarding corporate credit spreads: barring an exogenous event, they're not going to blow out significantly anytime soon.
If anything, corporate spreads will likely continue to narrow. The financial sector, which accounts for about 40% of the corporate bond market, has successfully recapitalized with new equity issuance. Dilution for shareholders, yes, but balance sheets look dramatically better than just two months ago!
Away from financials, the cost cutting of the last eighteen months - prompted by higher energy costs and a falloff in demand - has greatly cushioned the blow of diseconomies of scale resulting from a 20%+ falloff in demand. Industrial operating margins came in much better than expected in the first quarter! For the most part, industrial balance sheets are in very good shape, with most companies generating very good levels of free cash flow. (Of course, I am generalizing.)
Finally, one must look at the demand for corporate paper relative to other available fixed-income sources. With Treasury and agency notes offering meager yields, folks are "forced" to take on more risk, but it wasn't too much of a stretch.
For example, a month ago you were able to get a 5% yield from a diversified short-term investment-grade mutual fund. Vanguard's short-term fund, for example, gave you over 5% with a average credit quality of Aa3 and an average duration of only a little longer than two years. The current yield is now down to 3.9%, but I still believe that's a much better solution for those who are dependent on income and don't want to take on inordinate risk.
As I discussed back in April in my quarterly letter to clients, forcing yield-hungry investors into riskier asset classes was a primary goal of the Federal Reserve, and it appears to me that they've done an excellent job in that regard!
Position: Long VFSTX et al
Here's a question to ponder: Has anyone ever walked into a bar, slapped down an Office of the Comptroller of the Currency business card and expected to get somewhere?
Of course not. We have too many competing and overlapping regulatory agencies, and all of them were exposed over the past two years. Any White House-directed attempt to consolidate them would have wasted a lot of time and energy trying to herd these cats. The public airing of laundry would not have been pretty.
We need streamlining of all these agencies, but the Law of Unintended Consequences might have led to a self-defeating outcome. The history of regulation is that the industry captures the regulators, and pretty soon we would have had a regulatory monopoly beholden to the financial industry. If the previous model failed to achieve anything, that model almost certainly would have failed on a grander scale.
The Obama administration was wise to abandon this fight and work on something simple like Middle East peace.
Position: None
Anadarko (APC) just announced five-year and 10-year new bonds, and the spread will probably wind up around +340. Something like 20 basis points wider than its old 10-year issue (which I own). I still like energy over other sectors, and every day that oil rises, I like energy all the more. Note that APC recently did an equity offering, which as Jeff points out, is music to bondholder ears. I added some COP today.
Position: APC, ETP, COP (bonds)
IBM (IBM) is the kind of name that rarely comes in, and when it does, you have to buy it. Yesterday it was down about $1.78, and you could see the strength underneath. There are intraday bargains like this almost daily in this choppy-to-upside market.
Position: none
I know this one gapped up for a variety of reasons, but if it can pull back to $7 plain, it would be a great entry point.
Position: none
Brazilian GDP reported a -1.8% year-over-year contraction, the first negative figure of its kind since 2001. Slipping into a technical recession, the economy appears to be bottoming, and further rate cuts are expected.
BRL is still holding below 2, with green shoots continuing to appear we see further BRL gains toward 1.8 over H2. Brazil fundamentals remain sound and justify currency gains as the global outlook improves.
iShares Brazilan MSCI Index Fund, having gained over 70% since early March, has trimmed 1.59% in today's trading while the Bovespa has slipped 1.38%.
Position: None.
Last night Pep Boys (PBY) reported first-quarter EPS of 14 cents, excluding items, beating consensus estimates of 7 cents. Net earnings for the auto parts retailer were up 133%. Investors are responding well to the news and have pushed the stock to a 10% gain.
Pep Boys began the day with a breakaway gap higher open and is now trading at new highs for the year. Volume is running very heavy and is already above the stock's daily average. The surge today continues a powerful run the stock has been in over the last four weeks.
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In May, after a huge rally off the multi-month lows near $3.00, Pep Boys found support at $6.00. The stock had topped out at $8.50 in late April and was in need of a healthy pullback after nearly tripling off its late-2008/early-2009 lows. Since rebounding off the $6.00 area during the second week of May, Pep Boys has performed very well, adding 50% with today's pop.
In the short term, the stock is a bit extended and will likely need a healthy pullback before this leg of the bull run continues. Strong support is in place near the April and previous June highs near $8.50. A low-volume pullback to the $8.00 to $8.50 area would provide a low-risk buying opportunity. On the upside, I believe Pep Boys will eventually re-test its spring 2008 multi-week highs of $12.25 during this run.
Position: No positions
I think it's great that banks want to repay their TARP. I thought the bailout preserved bond holders at the expense of taxpayers. The Fed could always have done a GM with Citi but they chose to make debt owners, ie risk takers, whole in the plethora of direct investments, guarantees, and regulation modifications. Funny how something as simple as restricting compensation will force a bank to get religion. However, we all realize now, that bank holding companies are free to restructure/fail on their own, especially those that have returned TARP. Should the economy suffer a double dip, these banks must not be permitted to receive another dose of taxpayer largesse. Like autos or airlines, or media companies, these holding companies must sink or swim on their own. Banks, rather depositors, should not fail. Debt laden bank holding companies should have that priviledge.
Position: none
Some interesting moves out of Callaway Golf (ELY) this morning. The company slashed its quarterly dividend from 7 cents a share to just a penny. The move will save the company about $15 million annually. They are also going to do a private offering of $110 million of convertible preferred stock to pay down balances under its revolver.
Calloway also announced that second half 2009 profits would be better than the second half of 2008. Analyst estimates have the company just about breaking even for the year.
The company has held up better than most in the weak economy. Golf is one of those addictive hobbies that should muddle along for some time. When the economy recovers, it should experience a boom. The stock is trading today down 14% to just below tangible book value. If it gets to 80% of book, I will consider starting to accumulate the stock or selling the $5 puts to open a long position.
Position: none
The prices of some of these collateralized loans are off the charts. TARP should have bought the good ones -- which are accessible -- would have been a good trade!
Position: none
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Tim Melvin
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| Executive Compensation |
6/9/2009 12:17 PM EDT
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There have been some interesting remarks from our fearless Treasury secretary this morning. In a Senate hearing, Mr. Geithner told a panel that the government has substantial responsibilities in the area of executive compensation in the financial industry.
While I agree whole-heartedly with his accusation that shareholders and boards of directors did not do a good job of overseeing compensation, I am not sure government guidelines will be any better. He went on to note that the Federal Reserve was already considering and drafting new compensation guidelines.
This concerns me. I am fearful that this will spread from the financial industry to other sectors of our economy. What bothers me the most is that it is our own fault. Our failure as shareholders during the boom has opened Pandora's Box, and the long-term implications for business are frightening.
Position: none
In choppy trading the dollar is being sold to new lows for the session as Europe closes. As expectations of a Fed hike are unwound the dollar appears poised to return to the lows seen last week.
Euro: $1.4070 then $1.4135. The risk is for a test on the $1.4335 level seen last week, with support near $1.3950-70.
GBP: Sterling remains stellar, retracing more than 50% of a 8.5 cent decline. Next target is $1.6334, then $1.6450, and $1.6660. Also remains well supported against the euro.
JPY: The near-term risk extends toward JPY96.65 and possibly to JPY96.00.
Position: None.
Tim, when the modern salary structure in baseball came into place in the mid-1970s, the late Bill Veeck commented that it would not be the high price of stars that would affect the game, but rather the high price of mediocrity. He was right on that score.
You mention we as shareholders bear part of the blame, and this is no doubt true. But I don't remember if I ever bought anything with the illusion I was going to be a policy-contributing owner of the firm, and I always found those self-appointed shareholder "gadflies" beyond annoying. If you do not like the way they're running the company, sell the stock.
It always comes down to everyone looking at someone else to force sanity in compensation. I look to institutions who have millions of shares. They look to each other. Board members look to their own compensation committees. They do industry surveys of each other's behavior. Just like the arbitration system in baseball, the whole thing got ratcheted in one direction, higher.
We also learned something valuable about executive behavior in many cases. Just like corrupt dictators, they have no shame and no stop-button. The more they took, the more they wanted to take, and this even extended to the risks they took with the firms all the way from strategic decisions down to whether to hedge away various risks.
I'll end by looking to someone else. Unless boards can arrive at self-regulatory standards, the government will impose standards. I just want to be in the room when they tell Monty Burns and his ilk, "We think you're paid too much, and this is what we'd like you to do to correct this."
Position: Will hit .220 for $3 million. Any takers?
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Marc Chandler
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| Russia & WTO, Gulf Monetary Union |
6/9/2009 1:05 PM EDT
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After 15 years of failed attempts for WTO membership, Russia retreated last summer. Today officials announced the formation of a customs union with Belarus and Kazakhstan, which will seek to gain membership as a whole. Many suspect this is an attempt to formalize Russia's "sphere of influence" among former Soviet republics.
In the Middle East, the UAE, upset by the decision to locate the Gulf Monetary Union Central Bank in Saudi Arabia, refused to proceed with plans for a single currency. Saudi Arabia, Kuwait, Qatar, and Bahrain are still moving forward and early signs suggest a peg to the dollar.
Position: None.
Over the past two weeks, I've been busy grabbing coins out of the fountains, so I could repay my TARP funds. I'm not overly concerned about my company, but at least now I don't have to worry about my compensation being limited, and that is really the most important factor.
We are buying 16 contracts of the Proshares UltraShort Oil & Gas (DUG) while simulteneously shorting 10 contracts of the Energy Select SPDR (XLE). Our net cost was a very slight net credit. This trade is slightly energy bullish.
Position: Long DUG puts, short XLE calls
Men's Wearhouse (MW) reported its first-quarter results last night. The company beat consensus EPS by 11 cents and guided second-quarter EPS higher. As a result, the stock began the day with a breakout gap higher open. After the initial surge, the stock faded a bit only to gain more strength before blowing past the open print and on to new 2009 highs.
Men's Wearhouse is now up over 15% and is trading above heavy resistance near the $20.00 area. Volume is extremely heavy in the early going at double the daily average. By the close, today's trade level will be second only to the March 12 explosion for the current year.
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The breakout today begins a new leg higher for Men's Wearhouse. The stock had a powerful move off the March lows that doubled the share price. After losing steam just above $20.00 in late April, the stock began a healthy pullback to work off the overbought condition. Men's Wearhouse held support near its 200-day during this process as volume contracted. This action has laid a solid foundation for an upside move, and yesterday's earnings report supplied the catalyst for a convincing surge.
Strong support is in place from the May highs of $19.70 down to last week's highs of $18.90. On the upside, I expect the stock to test its September 2008 highs of $26.00 in the next few months.
Position: None
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Tom Graff
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| 3-year auction pretty good |
6/9/2009 1:19 PM EDT
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The Treasury's 3yr auction went pretty well. The auction went off about 1bps richer than where the when issued was trading just before the auction. The ancillary stats (bid/cover and indirect bids) were all an improvement over the May 5 auction.I think tomorrow's 10yr auction and Thursday's long-bond auction are much more important from a macro perspective. The prevailing theory is that Asian investors are loaded up on the front end. If that position is moderating, we'll see it in the next two auctions. I'm short TBT, and think that the auctions could represent a good time to add to that short.
Position: Short TBT
We are buying 16 contracts of the Proshares UltraShort Oil & Gas (DUG) June 16 puts while simultaneously shorting 10 contracts of the Energy Select SPDR (XLE) June 53 calls. Our net cost was a very slight net credit. This trade is slightly energy bullish.
For one that benefits more in a bullish choppy environment, we also bought the Direxion 3x Daily Bearish Energy ETF (ERY) June 17.5p, while selling the same XLE June 53 call. This was done in a one to one ratio for a net credit of 5 cents.
Position: Long ERY and DUG puts, short XLE calls
The three-year auction went very well. The bid-to-cover ratio was an above average of 2.82 to 1. The last five auctions have seen a cover of 2.44 to 1.
Indirect buyers totaled almost 44% of the issue, which shows foreign buying. This auction was expected to do well.
The bigger issue/worry is with the 10-year tomorrow. The bid-to-cover and the foreign buying will be the focus.
Position: None
Don Dion, a money manager and publisher of the Fidelity Independent Adviser family of newsletters, debuts today in a new forum on RealMoney -- the ETF Trading Diary.
We are thrilled to introduce this ETF trading diary to RealMoney and to have a professional such as Don to provide commentary though out the day. Don is the president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations. Please welcome Don to the ETF Diary.
Position: n/a
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Jim Cramer
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| Don Dion/ETFs/So Much More |
6/9/2009 1:52 PM EDT
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I want to echo Dave Morrow's comments on Don, who is fabulous and has been a must-read for ages. Remember that ETFs now represent some 30% of trading at major firms, so he is a very welcome addition. ... Welcome aboard!
Position: none
Don, you mention the Russian market. Both Russian stocks and the ruble came back after February as a logarithmic function of Urals crude oil delivered to Northwest Europe.
That logarithmic part is key: The huge kick in Russian stocks off the low and off of crude oil prices will start witnessing diminishing returns unless crude oil prices remain on an early 2008-type of run. I think we are headed higher in crude oil still, but not at that pace.
An indirect beneficiary of the Russian rebound is Switzerland. Why park your money in a cold, drafty Moscow bank when you can park it in a Swiss bank? The connection here is surprisingly direct and applies to money coming out of hot, dusty banks in the Middle East as well.
Position: None
The report out of Navistar (NAV) this morning was horrible. Sales were down 30% and earnings fell 94%. The truck and engine manufacturer also lowered its guidance for 2009 to $2.80 to $3.10 a share. The previous guidance was for $5.10 to $5.60.
The press release called the current economic conditions for the industry the worst since 1962. CEO Daniel Ustian added that the recovery was going to take longer than expected.
I have to confess I am impressed the company has remained profitable. They have taken advantage of the bad times to gain market share and expand their military business.
The shares do appear to be ahead of themselves in trading today. The stock is up more than 2.5% so far today. The multiple of falling earnings is a tad high for my taste at almost 15 times the estimate.
As analysts adjust their estimates down from the previous $4.09 level the stock may weaken from these levels. It might be a good time for long-term holders to sell some near term calls
Position: none
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Doug Kass
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| Whither Dr. Doom? |
6/9/2009 2:54 PM EDT
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Jimmy, where the heck is Nouriel Roubini, who confidently expressed the notion that most major money-center banks are walking zombies?
Will he be intellectually honest and admit he was wrong on a number of counts, including identifying the seeds of the collapse, the policy initiatives that have defined the recovery and the reality that his market forecasts were 100% incorrect?
I hate it when talking heads don't admit when they are wrong. I try to admit all my boners, and they are frequent!
Position: None
Dougie, he's just another one of those guys you and I have seen from time to time, someone who made the big splash, really got everyone going and doubled down when he should have declared victory. Too bad.... At the absolute bottom he resorted to the time-honored concept that my kids resorted to when they were 6 and 3 -- name-calling!
Position: none
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Tom Graff
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| USD/Long Bond Correlated Again Today |
6/9/2009 3:18 PM EDT
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We're seeing another U.S. dollar selloff coupled with a lower long bond (lower in price, higher in yield) and steeper yield curve. If you are a dollar bear, bet on a bull steepener as well. If you are a dollar bull, bet on a bull flattener.
Position: Short TBT
I see Safeway (SWY) got an analysts upgrade this morning from a brokerage firm. There has also been insider buying in the stock with a director picking up shares just a few weeks ago. I like this stock for the long term. I note that it still is only a few points off its 52-week low and trades at a low enterprise value to EBITDA.
I realize that Wal-Mart (WMT) has made the grocery business much more competitive in recent years, but Safeway is one of those that I think will be a survivor. Safeway is increasing its lower-priced, higher-margin store brand business, and that should boost profits going forward. The grocer recently hiked its dividend payout by 21% in a period when most are cutting payouts to investors. I never buy on up days, but this is one I think you can buy on any pullback.
Position: none
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Doug Kass
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| Maybe He's Coach Doom! |
6/9/2009 3:31 PM EDT
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"Those who can't do, teach. Those who can't teach, teach gym."
-- Woody Allen
Jimmy, I suppose, unlike a money manager or an individual investor who seeks to profit from Mr. Market, Nouriel Roubini's charge is to continue to market his consulting business.
It's a great gig if you can get it and if people buy it!
Position: None
It was a great gig while he had it going. I think he would walk a mile for a camera....
Position: none
The rally off of Texas Instruments (TXN) is a constant reminder of the big new product cycle of wireless Internet and how this application is perhaps the most important application to come along since the Web itself.
That's why these stocks won't quit. It is not "demand" per se but secular growth because of a new product which is what drives tech stocks to the moon.
Separately, I believe Apple (AAPL) is almost done digesting. As I reiterate here everyday, if you bought Apple on my suggestion over the last several months, you should have sold half by now. But the rest should be left to run, and a pullback to $130 is where I would start rebuilding the sold portion of the position...
Position: none
Lets see what they can do.. But this Supreme Court decision is very bullish for the market. Very bullish....
Position: none
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