Bill Cara’s Blog for May 10, 2010 [See post-close report]

A dead cat bounce at best.

It's all good. GS still manages to improve. It's like Bolt besting his world record. Bloomberg:

"Goldman Sachs Group Inc.’s traders made money every single day of the first quarter, a feat the firm has never accomplished before.

Daily trading net revenue was $25 million or higher in all of the first quarter’s 63 trading days, GS reported in a filing with the U.S. Securities and Exchange Commission today. The firm reaped more than $100 million on 35 of the days, or more than half the time. "

“This is the first time we have reported zero trading loss days in a quarter,” Samuel Robinson, a Goldman Sachs spokesman, “We believe it shows the strength of our customer franchise and risk management.”

Right.

Yeah, just pointing out your 'dipsticks' typo.

CSCO - estimates raised at Morgan Stanley through 2012. Company is likely to beat expectations this week and boost guidance. Equal-weight rating.

CSCO - estimates upped at UBS through 2011. Lead times are coming down and Tandberg should have a bigger impact on results. Neutral rating and $28 price target.

A special treat for the conspiracy theorists:

http://tinyurl.com/29ktgem

Although I am not sure how much of this is true, as I have stated before, I do believe the banks are in complete control of the markets. And right now, stable or rising markets are in their best interest as this enables them to fortify their balance sheets and gives them time to pawn off their rotten assets on to private investors. With the Fed and other central banks in the pockets of these banksters, the ability of these CBs to print an infinite amount of money lets the banksters move the market as they wish. Under these circs, I really do not see anything more than a mild correction.

This is a screen shot of the INTC order we talked about last night. As you can see I had a limit bid of 22.80 that was filled @ 22.47, which was the best ask at the time. GL to everyone!!

http://www.screencast.com/t/MTgwYmM1MTQ

I thought I did yesterday all conspiracy debunking I intended for the month, but I just have to ask this:

If banks are in complete control of the market and can make it move any way they wish, why do we even have any kinds of drops, setbacks, crashes, bear phases at all? Market drops, whole countries are unhappy, banks are under investigations, their shares drop causing them enormous losses, mass anger threatens their very safety, whole system falls apart etc etc. If they can do whatever they wish, why not run it up and up? Everyone is sleepy and happy, retirements are guaranteed, governments are mellow... Are they so stupid that they cause themselves all these troubles out of sheer spite?

"if banks are in complete control of the market and can make it move any way they wish, why do we even have any kinds of drops, setbacks, crashes, bear phases at all?"

Perhaps so they make money on the way down too? Is GS having 100% profitable days normal (in free markets)?

Wonder if they shorted their own stock too BTW.

I don't believe in conspiracy theories, but IMO anyone who invests in this stock market thinking it moves freely is at very high risk (to put it politely), as evidenced by the 10% drop intraday last week.

----

MCO, Moodys -11% today, straddles up +76% (today even though VIX crashed down). The attack on rating agencies continues (long overdue).

I too take issue with the specifics of the claim. One cannot say "complete control". Clearly, control is not complete or as Vad points out, we wouldn't have any corrections at all.

Still with insider information, 0% loans from the Fed, the exchanges canceling your bad trades, Fed purchases of your bad assets, and trading software that can move the markets at sensitive moments - the truth is more benign than "complete control". In terms of profitability, its about the best you can expect when in another era, they'd all be BK right now instead of pulling down 2006-style bonuses for yet another year.

So its definitely not complete control, but its not bad, all things considering. I wish I could trade on margin for 0%.

Is that a skinny or fat cat; its all in the bounce you know. lol

I put in an order for oks at 23. What price would you use - 40% of current or some other number?

ECB's Nowotny: Market reaction proves EU took the right steps, package is a major strike against speculation

Bruce, not sure which stock you are referring to, but having a limit order in to sell at 40% above (or buy 40% below) the open price would probably be a reasonable place. Of course depends on how volatile the stocks is, what your views on direction, etc. Just saying, it can't hurt to have a sell order in substantially above market should similar events to last week occur on the upside (In all likelihood, they probably won't because I expect these algo programs to adjust to decrease likelihood or a repeat).

REPEAT ERROR

VAD,
I know I'm late to the conversation, but I think this is important. For me the explanation you gave last night that the market dropped just because there were no bids does not explain why the QID (inverse ETF)that I was holding also made prints down to 4.50. Look at the charts. With the market dropping so fast how could there not be bids? In addition why is it that my broker and many others do not work on large volume down days, yet work perfectly on large volume up days. Was everyone able to trade during this time?
Bob

What this market teaches us over and over is that the cure and the disease are the same. Really frightening concept.

The irony is that the "Wolf pack" they seek to destroy are themselves!

http://bit.ly/bwNWPi

"I am sorry but I can't explain every action in every stock, nor am I able to watch all 10,000 of them."

Well you have been just demoted to a 4 star guru from a 5 star guru.:)
Bob

"But why bother? If you can make it move any way, you can make money on the way up or down; move up however keeps everyone happy while move down makes you a target. So keep it moving up and make money with no troubles whatsoever."

Vad,

As you know I'm not a trader and much of what you've been discussing is beyond me. But...

I see it a bit like a game where if the same ones win all the time, soon there are no more fish (suckers) to reel in. You need to let them get a little encouragement to keep the interest up.

You're a cat person. One morning I went down the basement and found our cat, Molly, with a mouse. The mouse was exhausted and dazed — she'd evidently been playing with it for some time. After that her catnip mouse held zero interest for her.

Individual investors or mutual fund managers are a necessary element to keep the game going especially if the Fed's free money ever leaves the field.

Grym,

missing my point a bit. I was making an argument against the concept that banks are able to make market move wherever they want any time. The argument was, if they could - they would simply run it up with no bear phases at all, and everyone would be happy. In reality though, it doesn't work this way, for many reasons, and one of them - no one can do that.

(US) Senators Levin (D-MI) and Merkeley (D-OR) introduce an amendment barring banks from betting against their clients
- Earlier today the WSJ reported Levin was drafting legislation to prevent conflicts of interest by prohibiting companies from taking the opposite side of the deal for their own account, at least when they are marketing investments they have created themselves.

HUH?? How do you sell something without taking the opposite side?

You would have to break up the selling and the buying activity from that 1 institution no?

until some clarity is produced on the issue of mining taxes.

http://www.swissinfo.ch/fre/economie/Xstrata_ne_ve...

It seems the Prime Minister is on the defensive due to a tepid response from the voting public to this 'fat cat' tax. Many people understand that it was this industry that enabled them to get through 2008/9 with significantly less economic pain than most OECD countries.

It would not surprise me to see this tax quietly disappear if the voters continue to maintain its ambivalent attitude to it, and the government in power.

http://www.theaustralian.com.au/news/nation/labor-...

Buying the dip might be worthwhile somewhere in this pullback.

NYU,

Go to BBC for oil spill news. In fact, anytime you know something's happening ("but you don't know what it is, do you, Mr. Jones?" -- B.Dylan), try BBC.

http://news.bbc.co.uk

J

perhaps they meant "sell" in a marketing sense?

I promised a more detailed post showing how that setup shaped up, with a screenshot. Here it is:

http://blog.realitytrader.com/2010/05/market-rever...

Thank you. Then 118.20 should provide equally as important of a resistance level.

despite the $1T debt bomb. And weakness in Euro all day.

Crisis still intact.

I had posted this last week or maybe even two weeks ago when i first saw whiffs of it.

If Fannie needs $8B more after a $13B loss Q1, housing is nowhere near the turning point. Banks are still stuck with junk on their bal sheets. Now add europe exposure for the top U.S Banks.

I'm out of kool aid. Oh. i have some more. FNM up 3.88% today.

Vad,

I think they are concerned with the situation where a bank is saying buy this "good investment idea" and at the same time a different department of the same bank is selling or shorting that very product.

As an example I'm remembering this with oil within the last couple years.

Vad, you often state that "total control" is flatly impossible, and as proof you show that your day trading pattern strategies are still working. I agree completely that "total control" (defined strictly as the ability to make prices go wherever you want, whenever you want) is not possible. However, I do think it's possible to keep an uptrend in place by intervention at strategic moments, effectively using short-covering money as fuel to keep things moving up.

If I were designing a program to keep the uptrend in place, it would be a counterpunching sort of program - one that knew about the existing patterns of the market and simply reinforced them at strategic moments, moments of maximum impact. Like an aikido master, it would take the energy of the short sellers and use it against them, buying at critical moments once selling pressure abated, then assuring a collection of cup & handle breakouts that would eventually move prices above the starting point.

At first it would be expensive. Lots of money would be used to achieve the initial trend change. However after a while, smart traders like you would notice that certain standard patterns tended to work out more often. "Boy that uptrend still seems in place", you would conclude. Things would work out, how did you put it - "like a charm."

As this continued to happen, more traders would jump on board. "Buy the dips, you can't go wrong." The whole thing would become a self-fulfilling prophecy. If I were at the Fed, I might tell some of the big trading firms that something of the sort is in place. They could short if they wanted to, but who wants to fight the Fed? Perhaps that's why Goldman has a 100% trading record. Perhaps they can detect the patterns, and are content to follow along.

This all works fine as long as short sellers are interested in continuing to short. Once short interest wanes, the "fuel" for the rebound moves would be gone, and the uptrend would peter out. So you allow a correction to occur, suck in the shorts again, and then lather, rinse, repeat.

That's how I would do it. And you Vad would say, "my goodness, my trading strategies continue to work, therefore there IS no manipulation. Q.E.D."

Imagine how effective this whole thing would be if coupled with inside access to economic news. I dare say it might even make money, rather than simply being revenue neutral. "Today there will be a correction, it will last a few days, and then this news will come out, and we'll pull the trigger once again."

Its a story, my story, and it may have no basis in fact at all, but it would explain a lot. And it sure credits the Fed with a lot more technical market understanding than some sort of brute force "total market control" approach. Yet the same goal is achieved, is it not? How long they can keep this going depends on how long the shorts stay interested.

Grym,

Nope... they specifically talk about actual sell of product, mostly based on situation where GS sold financial products (securitized mortgages in that case) to a client taking short position in the course of the deal. It was a subject of Levin's outrage, and no he tries to follow through. IMO, they may just as well decree away gravity - it makes no sense at all (good politics though, no doubt).

http://www.youtube.com/watch?v=XrgP1u5YWEg&feature...

Had to walk away from the PC around 1115 am (pst) today, and was basically preoccupied for the remainder of the afternoon.

When I checked quotes by cell later in the day and heard that the DJIA had closed +404, 50 points below the high of the day, my first thought was 'Maybe I should have kept a few ultrashort bets going.'

Then I entered the symbols for TZA, ERY, and FAZ. All closed just pennies above their lows.

What's that trading rule? Thou shalt clear all ultras off the table before logging off.

8:55:29 PM Banking Min Kamei: Earnings for company will not be good; Govt to take appropriate action on bank

20:58 (JP) Japan's Strategy Min Sengoku: Japan's outstanding debt at highest level in the world; Current Account may result in market response

21:02 (JP) Japan's Fin Min Kan: Need to take steps to prevent next year's debt issuance above ¥44.3T
- May consider a spending cap in some areas during next year's budget

(US) The US government helped nudge EU officials to pursue large Euro Zone stability package - NYT
- According to the article, US President Obama told Germany's Chancellor Merkel that the Europeans needed an overwhelming financial rescue to end speculation that the euro could crumble.
- The article adds that the deal required a contentious vote by members of the ECB to buy sovereign debt

I don't even know where to begin... I'll leave it with no comment

had mentioned arena last week ( on charts movement )... as always, fda is a crapshoot( re: itmn ), but saftey is a Big issue these days... the most important thing is phase 3 is finished... with vvus decision im July, some people see a vvus approval as negative for arena.. I don't.. anyway, here is an article ( author has position )... * vad had made a nice trade on this last year.. this is one of my ' buy and wait and see ' how the action goes... anyway, hope all is well... after next market drop, I will consider re-establishing a few positions I reduced/sold last month... best of trades... http://www.arenapharm.com/wt/page/lho.html

... http://seekingalpha.com/instablog/523862-kllj-inve...

baz22, great article on the fat inhibitors......ironic that I would just read it now after eating four slices of banananut bread w/copious globs of butter on it.........you picked your audience well.....still in ANDS, ARIA, KERX and CMED (china), thanks again for your help now and in the past, toby..........

A guest commentary from a German economic 'expert':

"Was this massive rescue action necessary? That question is difficult to answer. There is no way of assessing the value of any alternatives -- or to let the rescue package for Greece have an effect first. However, we know from previous crises that simply running after the markets brings little success. One has to succeed in surprising them and in rapping the protagonists on the knuckles. That is exactly what the European Union can finally do now. If the euro climbs in value in the coming days, then many speculators will have to react and end their bets on it to ensure that they don't end up losers themselves."

Hold it right there. Two weeks ago it was about German workers paying for Greek workers early and well funded retirements. Now it is defending against speculation? Frankly he is full of it when he says there is no way of assessing the value of any alternatives. Default has a clear and measurable impact that was obviously not on the political agenda. And always it is the speculators. How long before the public tire of this excuse? Europeans have got their own dog and pony show happening to rival Washington. As Vad pointed out, trading one mess today for an even messier one tomorrow...

http://www.spiegel.de/international/europe/0,1518,...

and the result of this defence against the "wolf packs" (to quote the Swedish Finance Minister):

"Asian stocks fall as rally after EU debt bailout fizzles out"

lol, 1 trillion Euros doesn't buy much relief nowadays does it? Doesn't look like the debt markets are making out any better:

http://www.bloomberg.com/apps/news?pid=20601009&si...

unplugged: "What I observe is that everyone has succumbed to expousing their personal brillance on defineing minutia."

"Although those who concern themselves with details are regarded as folk of limited intelligence, it seems to me that this part is essential, because it is the foundation, and it is impossible to erect any building or establish any method without understanding its principles. It is not enough to have a liking for architecture. One must also know stone cutting" Marshal de Saxe, quoted in Foucault's 'Discipline and Punish'. Don't underestimate the little things...

Of course, Foucault was illustrating the control being exercised over us in the rationalist world - what we see, what we smell, what we think (think of 'The Matrix'). I am presently writing an essay on a philosophical enquiry that received little notice in the largely rationalist world the Occident has become since The Enlightenment, but appears to shares some characteristics with the Taoist notion of 'Wu Wei' or inner nature.

It was penned by Kant and is called 'transcendental idealism'. The basic premise of which is that if our minds have been trained to give us understanding of given phenomena - a fat stupid child, an economically productive tree, an ugly insect - the whole gambit of the way we as humans relate to our world - then there is in all likeliness another reality to this world and ourselves that we have not yet tapped into. It is a world that flora and fauna live IN, they don't separate themselves from their environment as entities like we do. We have been 'blessed' with consciousness, but I grasp the idea that its a curse as well.

There is a much bigger picture than the economic system - the world of phenomena - that you allude to. Many of us are awake, but I believe Bill's place is a markets and economics hangout, not a 'café philosophique'.

http://www.abc.net.au/news/stories/2010/05/10/2895...

...makes you wonder, doesn't it?

What's another Fakir more or less. Snake charmers, ascetics and the guru on a mountain top have beguiled man in every civilization since Babylon. I'm sure our 'caveman' cousins had Holy Grunters. There was probably a market for used spears and clubs back then and those guys were not trusted either.

Not to belittle your point which in part I agree with, how one relates to the macrocosm is a function of where one is in a civilization. Our Western Civilization is the only game in town, for now. You need not be Northern Germanic Christian to mimic our dynamics in math and work. These basics can be learned in a school. But you must adapt to the basic concepts even though you are Hindu, Sino, Slavic or Islamic.

War. The essence of winning a war is not to enslave your enemy or occupy his lands or even to receive tribute. The winning of a war is forcing your opponent to adopt your system of laws to some degree but your economic money thought most of all. Show me an enemy of the West that does NOT NOW HAVE A BOURSE.
They are slim to none. QED.

All I've learned in my stupid brief life has come from Goethe, Spengler and Herman Kahn. Well not all of course. Philosophers are in vogue from time to time. Many Philosophers are disguised as comedians. Rabelais and Moliere come to mind. Not 'name dropping' but Dostoevski and Bulgakov were without doubt the two greatest writters of the 19th and 20th century respectively. I forgot, and everyone else has too it seems, Melville's epic poem, longer than the Iliad, "Clarel". THE seminal introspection of our civilazition...

But who cares? I would quote Juvanal's oration about Panem Et Circenses but it is far too late for that. I live now. I cannot live backwards. All that is to come can be fathomed by a 10th grader but it can't be reckoned as to time. Time is the cruel mistress. Looking into a mirror each morning and I know that this is true!

For the poor young kids just getting started down your life to serfdom I would offer this; buy a house at of below replacement cost. Get a 30 year mortgage at 5% and laugh all the way to the bank when rates are 15% and you pay back in nickles to the dollar. Buy 'stuff' as an investment. It can be gold, cows, land, and even stocks that will go UP when your dollars become trash. And they will.

I'm reminded of the tale of the hedgehog and the fox. The fox is cunning and he knows many tricks. The hedghog knows only one BIG TRICK. And he survives the fox.

Using my very best Queen's English, good stalking to all.

ALOHA!!

DEPOSIT INSURANCE FUND(DIF)

Seems to be "heating" up now over at the US Treasury. One of the proposed alternatives to getting private banks to pre-pay funds for deposit insurance was to borrow from the US TREASURY. This is found on page eight of the September 2009 FDIC directive entitled SPECIAL ASSESSMENT, RESTORATION PLAN AND PROPOSAL FOR MAINTAINING FUND LIQUIDITY.

As I peer into the US TREASURY STATEMENTS going back to April Fools, 4/1/10 it appears that DIF is being funded more and more by US Taxpayers via US TREASURY outlays. Here it is and I notice a pattern forming.

DATE - AMOUNT
04/1 - $0
04/2 - $53MIL
04/5 - $0
04/6 - $0
04/7 - $0
04/8 - $0
04/9 - $0
4/12 - $0
4/13 - $143MIL
4/14 - $107MIL
4/15 - $0
4/16 - $0
4/19 - $499MIL
4/20 - $0
4/21 - $466MIL
4/22 - $0
4/23 - $0
4/26 - $263MIL
4/27 - $0
4/28 - $1.5BIL
4/29 - $0
4/30 - $142MIL
05/3 - $557MIL
05/4 - $2.4BIL
05/5 - $838MIL
05/6 - $1.1BIL
05/7 - $2.7BIL
5/10 - $6.4BIL

Currently the DIF YTD for FY 2010 sits at $33BIL USD. Since the DIF merged two other deposit insurance funds in 2006 I can only find data for FY 2009 and FY 2008 to see where we were YTD compared to FY 2010. Here it is for May 10th YTD ...

FY 2008 - $337MIL
FY 2009 - $19.3BIL
FY 2010 - $33BIL

Look at that "flow of funds" progression ... Some $17BIL of the $33BIL was spent since April Fools. It seems the US Taxpayer is paying for his own FDIC now. Yet another backdoor bank bailout.

I have an idea ... why not raise the bank reserve rates severely instead, whereby the banks are forced to keep much more deposits on reserve? How about a 25% reserve rate? Let the depositors bail themselves out. Part of the reason we are in this mess are these explicit "guarantees" by the US government for everything and anything financial ... FDIC SIPC ...

The US Treasury is the be-all-end-all counterparty for all risk ... social, political and financial! By using the US Treasury as a "deposit guarantee" that leaves the banks free to take on more and more risk. And that is what they are doing and that is not Constitutional ...

I didn't sign on for this ...

ALOHA!!

Who is the CDS counterparty to this "dog pile" or "wolf pile" onto the PIIGS? Who will pay off all these bets when they win? AIG couldn't pay off without the US Taxpayers aid ... Are the EU Taxpayers going to pay off the CDS bets?