Bill Cara’s Blog for April 21, 2010 [See post-close report]

Bang on, again, Bill, with your thoughts of the day. There was some very violent Forex moves yesterday. For a while now, I've had a finger in almost every pot, in my portfolio. One advantage of that is that I get a better sense of the global flows. Like many Canadians in my situation can tell you, yesterday was bizzare - green tapes all around the world. Despite that, yesterday was, hands down, the WORST daily performance of my globally diversified portfolio, since some time last year. We are reaching some interesting junctures here, I think.

Looks like another Apple at any price day:

AAPL - PT Raised from $300 to $325 @ Canaccord adams. Buy

Bill,

Thanks for this, being based in Europe there's not much objective commentary around imho.

I'm thinking that if the EUR goes down (i.e., before the $USD goes down) based on the EU-internal debt problems alone, then gold to the extent that it is a monetary metal should retain it's neutral function, and go up in EUR about as much as it goes down in $USD. That would be something like 5% moves if the EUR goes to 1.20.

If gold moves more or less than this, i.e. is not neutral, then something else is (also) going on.

Also looking at the EURUSD chart, going down to test the low for the 3rd time, it might have one more bounce in it before breaking down.

out of AIG at small gain. Just trading. Only long right now is REDF...getting a little nervous staying long here.

AAPL - PT Raised from $300 to $310 @ Caris & Co. Buy

AAPL - target, estimates boosted at BofA/Merrill. AAPL price target surged to $300 from $260 after 2Q10 earnings blew past expectations. 2010 and 2011 EPS estimates improved to $13.19 and $14.15, respectively. Maintain Buy.

AAPL - estimates, target increased at Goldman Sached. Shares of AAPL now seen reaching $270. Estimates also upped, given better sales and operating leverage. Neutral rating.

CSCO - target, estimates boosted at Barclays. CSCO price target increased to $31 from $28 on continued improvement in enterprise and healthy carrier markets. 2010 and 2011 EPS estimates lifted to $1.60 and $1.85, respectively. Overweight rating.

GILD - estimates lowered at Morgan Stanley through 2012. Company cut sales guidance, because of health care reform. Equal-weight rating and $48 price target.

JCP - estimates, target raised at Goldman Sached. Shares of JCP now seen reaching $38. Estimates also increased, given higher expected same-store sales. Buy rating.

JNJ - estimates lowered at Goldman Sached through 2012. Company is being hurt by healthcare reform. Neutral rating and $65 price target.

JNPR - estimates upped at Goldman through 2011. Accounting uncertainty has created a buying opportunity. Still, deferred revenues are growing and the company is seeing higher operating margins. Buy rating and $34 price target.

MSFT - estimates tweaked at Barclays. MSFT 2010 and 2011 EPS estimates raised to $2.04 and $2.29, respectively. Consumer PC strength and improving IT spending trends, Barclays noted. Reiterate Equal Weight rating and $35 target.

unemployment in western europe is a drastically different animal than in north america.

people fail to appreciate that many western european people still live in large communal households, or live at home longer prior to moving out as adults, or have grandparents living in or close by their homes to help w/ the children.

the north american arrangement where boy moves out at 22, rents until 28 when he marries and buys a massive 2 car garage detached home in a distant suburb levered to the hilt while his wife and him work while doing 1.5 hour commutes each way to work bringing their children to a $1200 a month day care.... this is much much less common in western europe, as much because of the culture in some regions and because the lack of moeny. a couple would need very very good jobs to both work while sending 2 kids to a full day day-care living in a large home w/ 2 cars.

unemployed italians and spaniards who still have lunch at home w/ their parents, or who lived there into their late 20's saving cash before moving into a small place w/ their wives are in a different position if they loose their jobs than a man w/ $350,000 in mortgage debt, $5000 in CC debt and 2 kids, a health care plan to pay for and a wife with a so-so job downtown.

its less to do with our economies than it is on our expectations. to many north Americans you buy a house with a yard for your kids, its a natural expectation as if its a human right for kids to have so much space. to many europeans the idea of amassing huge sums of debt to achieve this is simply not viable. or perhaps its just that much easier in north america to do so.

europeans have a long history of living with less, and with war, i see nothing to suggest that they will crumble because of a severe recession. the EU might fall apart becuase geo-strategically its a disaster in the making, but unemployment and hard times are something europeans are better able to face in my mind than us.

Granted it mut be a misquote. The larger question is how will Canada's Banking system fare in the arena of a G20 in the mood to impose such taxes? Does Canada have the will to resist a consensus of the G20.

that's a very cryptic post baz.

tof- I agree with being nervous. Made a few hundred trading VXX this morning, but apart from long-term positions in C, I'm only interested in fading intraday moves right now.

In fact, if the market doesn't start pulling back soon, I may end up like Vad, a total agnostic only interested in taking advantage of other traders ;)

Moved to the dark side this morning with SPY $122 May puts at $2.21...got lucky on price...as a hedge to the longs I held. I have since sold off some REDF and have mostly cash. The market action today is a bit negative as we got outstanding earnings and a possible positive development in Goldman and yet it couldn't make new highs. I suspect the rumblings in Europe and people taking profits are ruling the day. I just read that the spreads on Portugal's debt are exploding now. Short FXE will probably continue to be a good trade.

EDIT:
I wouldn't be surprised to see the lows from Friday tested at some point.

If last 13 months weren't enough to convince you... :)

http://www.newmoney.gov/newmoney/flash/interactive...

..."Now the Senate's Permanent Subcommittee on Investigations, led by Carl Levin, Democrat of Michigan, is planning to focus hearings scheduled for next week at least in part on Goldman Sachs's role in the financial disaster.

Levin's staff has uncovered new documents "that link certain actions to specific people" at Goldman, according to a senior legislative official who spoke on condition of anonymity."... Newsweek

Sold puts at $2.53.

Then what would??

I'd say we need to give it some time before we can call the rally over. It looks like when SPY broke support at 120.7 and failed to get back above it that the downside risks were higher than upside. However, the market has begun to strengthen over the past 15 minutes or so and SPY is back up above support.

ALOHA!!

Not according to the US Treasury ...

On April 19th, YTD for FY2010 the US Treasury reported total "net tax" of $799.9BIL USD, lets just say $800BIL USD, a bit over one TARP!

Yet here is the debt and spending ...

MARKETABLE TREASURIES ISSUED - $4.35TRIL
NET OUTLAYS - $2.46TRIL

Given the spending and debt issues we have spending based on net outlays at 3.1 times tax revenues and we have debt being issued at 5.4 times tax revenues. Now if we add back in the "cost" for redemptions on those US Treasuries, which brings gross outlays to $6.13TRIL then that is 7.7 times tax revenues.

I will just venture a guess here that both the REPS or DEMS want to retain their political power for another 100 years. If you accept that as a "given" then the only way they can accomplish that is to continue to make good on the vast promises they have handed out the past 100 years, The cost to fund those promises in order to stay in power is the issue. The last thing these two political monopolies want is to see citizens panic and take to the streets. They got a taste pf that during the Vietnam War, when there was a lot civil disobedience. They will spend and debt as much as possible to obtain their goals. Taxation is fast becoming irrelevant compared to spending and debt. As we all know none of can have our financial cake and eat it too! You cannot spend yourself to prosperity. Just as sure as you cannot indebt yourself into blissful wealth either. As we also all know you cannot have income without a job. The path of least resistance and the chosen path for retaining political power over the past 100 years has been currency destruction using inflationary monetary policy. Welcome to the US Treasury's Alice In Wonderland!

back on. $122 Mays at $2.44. Position size is really small...mostly in cash. Eyeing the 120.70 level as resistance/support.

FRANKFURT, April 21 (Reuters) - German landesbank BayernLB [BAYB.UL] said on Wednesday it cut ties to Goldman Sachs (GS.N) in response to U.S. regulatory action against the Wall Street bank, the first sign of a loss of business in Germany. - from Global Perspectives

when this is all done, I do believe bubblevision will never recover what little credibility it may now have....

Not a surprise that they would be defending them if they are. They only thing they are good for is gauging traders' sentiment when they have real traders on.

I can't see making any trades right now other than the kind youve been posting this morning. As far as I'm concerned, we're too stretched to open any longs, and until proven otherwise, all short positions are tickets to undesirable destinations.

As far as longs go, depends on a sector... all longs worked like charm today on FITB, HBAN, ACAS, VMED. I, as always, have no idea whether it's top or not, but even if it is - it's not being made by all stocks and sectors at the same time, they rotate.

JM(very)HO...

Did you write your will?

Do I need to? ;)

http://www.europac.net/videoblog.asp?a=watch

"We need free market reforms."

Safety on... Bullets as hollow as Obama's promises.
Series of lower highs and lower lows all day.

VIX is going to fill that gap straight-away.

I couldn't agree more Bill. However, there have been some companies that have raised guidance so I'd say it's mixed. It seems like the market is starting to stall here, nonetheless.

The short sale process is taking so long that many home owners and investors are still winding up on the foreclosure table after the sheer exhaustion of trying to negotiate a solution for many months between unwilling lenders. Realtors negotiating short sales will soon be required to become licensed loan officers--or--maybe hire a real loan officer. Why? The Feds prefer licensed financial people handling a borrower's sensitive financial data--imagine that! Oh, and once your Realtor knows your financial status they might not be quite so impartial in a sale negotiation. Not that anyone in our industry would ever stoop to taking advantage of a distressed homeowner or anything...

Mark,

good post, thank you. I am glad to hear from someone in the industry.

Let me give my angle on this part: "Its easy to talk about how the banking industry has ruined this country - but the government really needs to understand ..."

Here, IMO, is the major problem with all this. Government doesn't want to understand anything about that, and the reason is: government (in broad sense, Congress included) WANTS to present situation as "banking industry ruined country." Notice how everyone speaks of banks as the only culprit these days? Everyone hates the banks and banksters? But let's pause for a second. Doesn't it take, well, in this case three to tango? Let's list them:

1. Didn't government create a situation open for abuse by pushing for loose lending practices and creating mechanism of FNM/FRE/AIG guaranteeing those questionable loans?
2. Didn't public merrily borrow beyond their realistic means of repayment, using house equity as ATM and ignoring common sense and responsibility?
3. Didn't banks facilitate this whole class of transactions, obliging 1 and 2 and abandoning common sense in the name of short term profits and fitting with what everyone else was doing?

If above is right, then current war on banks is no different than two criminals uniting against their third partner in crime, foaming in feigned indignation and forming both court and firing squad. They'll feel good about themselves while pretending they were clean and it was he, this third one, who did it all.

What's so wrong with this, one may ask - after all, the third party is a guilty too. Well, what is going to happen, IMO, is no real, sensible reform will be forthcoming. Instead we will get a surrogate justice and surrogate reform that will not prevent another crisis down the road. One of aspects in the current bill for instance I can't view as anything but directly encouraging excessive risk taking. Another harmful outcome we are going to see is a lot of "unintended consequences" - one of them is what you are facing now, and a lot more to come.

Maybe that's why I do not partake in this widespread delight in development with GS. I want to see system reformed first - then looking whether someone violated the laws and rules that existed at the moment. As it stands, rage of the battle will replace the real reform. You can already see it happening - those who objects against current bill are labeled as opponents of reform itself, and public's rage is being used to pressure them. Substance of the bill is not all that important, you see... what is important is the very fact of bill passage, because election is coming, gotta earn those points...

I know it's not a popular view, but I call them as I see them - after all I make a living disagreeing with majority.

Loannetter,
Good observation. I would offer that there is still a lot of fraud and self dealing among brokers representing short sales. A transaction that I am familiar with was so bizzare and time consuming that in my opinion short sales are a joke for the most part. A good clean foreclosure is the only thing that makes economic sense. The stupid 2nd lien holders are kicked to the curb and the process is over in a matter of 2 months, at least in Texas.

Short sales seem to me to be another attempt to assuage the voters into thinking the government has compassion. Gee, it won't hurt your credit, no tax liabilities yada yada. My 2 cents is foreclose, auction and be done with it. The sooner the markets clear, the sooner housing recovers.

The beautiful volatility of housing markets in Russia and even China is that real buyer/seller cash is at risk. If one pays cash for a flat, he may sell for a profit OR he may need to sell and take a 50% discount from his purchase. I know of flats in Moscow that sold in 01 for $65,000 that were resold in 05 for $185,000 and are now going for $95,000. Our system puts lenders between a willing buyer and seller. Hence, our markets are 'workouts' and take many many years to restabilize. Just an observation but people make better decisions when they risk/spend their own cash.

Thank you Bill and team for another outstanding analysis, this time of the opportunities present in India. That you release this depth of intellectual capital into the community here is testament to your conviction that if enough of us owners of capital study hard enough, we can prosper in this market despite the imbalances created by historic levels of intervention and outright conflict of interest. I am reminded of the great parable "teach a man(woman) to fish, and you teach him for life"...

By Maud van Gaal

April 21 (Bloomberg) -- The benchmark gauge for U.S. stock options may surge to levels not seen since March 2009, when the Standard & Poor’s 500 Index reached a 12-year low, after last week’s jump in volatility, technical analysts at UBS AG wrote.

The Chicago Board Options Exchange Volatility Index, or VIX, soared the most in more than two months on April 16 and the S&P 500 sank 1.6 percent as Securities and Exchange Commission fraud accusations against Goldman Sachs Group Inc. spurred concern the fallout from the financial crisis isn’t over.

“The 15 percent spike in volatility on Friday is in our view just the beginning of a trend reversal in the VIX index,” Zurich-based analysts Michael Riesner and Marc Mueller wrote in a report dated yesterday. “With the Friday reversal we think we have seen the low in the VIX this year, which means that into the second half of 2010 we expect volatility and therefore risk aversion to increase substantially. We wouldn’t be surprised to see the VIX moving towards 40 to 45 into early fourth quarter.”

http://www.bloomberg.com/apps/news?pid=20601057&si...

It looks like the big developers are buying land again. Of course they are trying to stoke the fire by saying "There is a shortage of land". (I thought Toll Brothers coined that term in 2005)

http://www.businessweek.com/magazine/content/10_11...

The number of lots owned or controlled by a dozen of the biggest builders rose slightly in the second half of 2009 after years of decline as renewed buying offset heavy tax-related selling of unwanted parcels, according to a Bloomberg analysis of company reports. In crash-prone markets such as Southern California and Florida, prices of some construction-ready lots are up 50% or more from their 2009 lows. "There is definitely a shortage of land, and you cannot turn the switch on overnight," says Douglas C. Yearley Jr., executive-vice president of luxury builder Toll Brothers (TOL). "That will cause builders to aggressively buy the land they can."

Interest in unfinished land usually comes later in the housing cycle, says Thomas E. Lucas, senior vice-president of operations for DMB in Scottsdale. "We didn't think we'd sell raw land for three to four years," Lucas says. That's a striking vote of confidence considering the threats to housing from high unemployment, rising mortgage rates, and foreclosures.

Everything seems to happen faster these days—including the housing cycle, which is heading up before it has hit bottom.

ALOHA!!

Mark-Yes, thanks for the insider GROUND REPORT ... I love to hear from those who are actually on the "ground" in the trenches trying to survive unending regulation and the constant milking of those entities in America that are productive making an honest living.

I have said numerous times in the past that regional banks here in Hawaii have survived by taking no TARP as well. Once again it is those in America who are honest and productive who must take care of those who are not.

I was at the Bank Of Hawaii website and here is a link to the BUSINESS CONFIDENCE SURVEY, which pretty much validates what the NFIB reports on SMALL BUSINESS SENTIMENT nationwide.

LINK: https://www.boh.com/economics/559.asp

In essence most small businesses cannot take risks like TBTF HB&B can because there is no "bought and paid for" US Congress on standby to bail us out. When politics dictates your future business it is hard to make any decisions at all until you know which way the wind blows. This is the main reason most businesses like mine are just sitting in limbo. The Bank of Hawaii BUSINESS CONFIDENCE SURVEY confirms that as most are just staying where they are or expecting worsening conditions. It ends up being a NO CONFIDENCE vote on the US political leadership which holds too much centralized monopolistic control over all our lives. These are all red flags and symptoms of the C WORD.

davefairtex,

All good Tax Incentives come to an end: the First Time/Step Up Buyer's Tax credit ends on April 30th, 2010, the date you must have your purchase contract signed and you have until June 30th to close. Which suggests prices could experience a little drop on May 1 given that 48.2% of current sales are to FTHB's in the youth buyer group (average age FTHB is 28 years old).

The FTHB/Step Up Tax Credit has been extended ONLY for Federal/Military Staff who have served overseas for at least 90 days, which gives those buyers an extra year. As long as the prices are still low and YES rates are still low... then buyers will buy, regardless of tax incentive. I personally feel the price points have accomodated the perceived tax 'saving's' and will drop on May 1 in most areas. Just sayin!

Good morning.

BA - PT Raised from $77 to $90 @ Stifel Nicolaus. Buy

SBUX - Upgraded to Buy @ Jesup & Lamont. PT Raised from $25 to $32

SNDK - PT Raised from $23 to $31 @ Auriga U.S.A. Sell