Bill Cara’s Blog for May 6, 2010 [See post-close report]

Good morning.

KGC - Downgraded to Hold @ Deutsche

New Coverage:

JNPR - ThinkEquity Initiates with a Hold
SNDK - Sterne Agee Initiates with a Buy. PT = $50

http://2.bp.blogspot.com/_H2DePAZe2gA/S-HUEi4EImI/...

It holds until it doesn't. So if you're a bull or a bear with a dollar in the market right now, you have to ask yourself - are you feeling lucky?

...well, are you? :P

from Jesses:

http://jessescrossroadscafe.blogspot.com/

No shock, fully expected, though not the timing of course - and I hardly expected the eurozone to collapse first, nor this soon.

Janszen of iTulip has perhaps the best non-goldbuggish handle on what gold is (and is not) imho:

Questioning Fashionable Financial Advice
Gold - September 2001
http://www.itulip.com/gold.htm

As to what a US sovereign debt crisis might be like, try this:

A glimpse into financial hell
http://ftalphaville.ft.com/blog/2010/05/04/218716/...

"Alan Ruskin has peered into the abyss of a US sovereign debt crisis to see what the world might look like. Unsurprisingly, it’s not a nice place.
. . . "

...owed to china and others.

so we went from dot-com, to housing/credit, then to sovereign debt bubbles.

and LOL, Goldman Sachs making out like bandits in the process. A new week, a new richest person in China. Blow, baby, Blow!

http://www.telegraph.co.uk/finance/china-business/...

http://bit.ly/98jf51

the master of triple talk.

He's been tanning.

Here are a couple more which seem to fit nicely —

"Get your facts first, then you can distort them as you please." Mark Twain

"Politics is the ability to foretell what is going to happen tomorrow, next week, next month and next year. And to have the ability afterwards to explain why it didn't happen." Winston Churchill

let's see how U.S markets act.

I really like Tenet Healthcare (THC). In their most recent Q, they reported their best margin in 7 years; their free cash flow is dramatically improving YOY and they are likely to benefit in the coming Q's from an NOL tax carry-forward. By my back of the envelope calculation, their 2010 P/E is around 10. Their forward P/E is around 8.5.

They are making strategic acquisitions of outpatient facilities. My favorite line from the recent conference call was "Because when I look at your numbers the way they work, I have trouble keeping them down." (Sherry Skolnick of CRT Capital who has followed Tenet all through the scandal years). Technically, the stock is really respecting the weighted 200DMA and there's been some recent institutional buying.

They are the 2nd largest for profit hospital in the US and seem to be at the convergence of several long-term positive trends: (a) an aging population; (b) a rise in outpatient procedures and/or shorter hospital stays; and (c) health care reform legislation virtually eliminates the uncollected expense previously associated with treating the uninsured.

The stock is sub $6/share a here and although the balance sheet still needs work, I think the worst is behind the company. If you have a 3-5 year time horizon, I really like this one for long term growth and share price appreciation. Its always good to have a little health care exposure in one's portfolio. If cash flows get healthy enough, they might even re-introduce their dividend before the health care reform legislation goes into effect.

I appreciate any thoughts on THC if there are any out there!

Despite the usual NY takedowns and exceptional USD strength, gold seems to be bouncing back in fine fashion. Silver has been bludgeoned though. Most interesting that when the USD reached its lows near the 72 level in Spring 2008, gold was trading around the $900 level. One can only imagine how high gold would move now if the USD revisited its previous lows? Rumour has it that the boyz are desperate to cover at least some portion of their enormous silver short positions prior to next week's bankster meeting between the IMF and SNB.

Major strength!

figure out who is writing the scripts for CNBC, then follow their trade....

HI Lelic,

Wouldn't it seem likely that EWI
would go to it's March 2009 low
of 9 1/2 which is about 34% lower
than where it's now trading?

Now have a full position in WATG at $9.68 average...was waiting for this dip to take a position. Stock is trading at 9 times this years earnings and earnings should grow 25%+ for the next several years as the China auto market continues to grow. They also have about 1/4 of their market cap in cash after backing out debt.

In addition to long term growth trends for the China auto market, auto markers are looking to the China auto parts makers to reduce costs:

http://www.bloomberg.com/apps/news?pid=20601209&si...

I consider this a great long term buying opportunity. The stock is at the same level it was in June 2009 when we were barely emerging from the credit crisis and when earnings were about 40% lower than they are now.

Hi All - Nice sell off again today, but tomorrow will be the same run up we have seen in the past before Treasury auction week. The regime needs a good auction next week and the Treasury yields need to climb off of 5 month lows to insure the auction proceeds favorably IMHO. Happy Trading

That gives us a new definition of a "Golden Fleece." Just a backdoor bailout of Herr Von Umlaut...D-Bank and others. I have always been under the silly notion that if you make a bad loan, you eat it. When they get too big to flail, shoot them.

SPQR

http://bit.ly/ak2nSK

at close...moving 33% of my account into SPY at the close. This is the selloff I was looking for, but I want to leave some in cash in case we drop another 5 to 7%. I believe there is a chance we see a selloff to the 200 DMA, but it's too hard to tell because with the jobs report tomorrow there is a chance we could have a big bounce if the news is good.

The market is now down 7% from Monday's highs.

dow now down 518 points. wow

first time for me. been a bad day trying to catch bounces. can see why now. IB just frozen, nothings working. taking a screen shot of this day for printing and framing.

wanted to catch F with a big shares for bounce trade to fix the hole I'm in, has been impossible. IB can't handle what's happening. Big hole in my account today

Market feels "broken"
No idea what prices are
I can't even log on to Fidelity

The "Creator" walked away from the control desk for a moment...

bid/ask spreads on what i was watching went huge, and then fixed itself

Went to cash yesterday except physical gold. Whew. Bill has been warning us that this was going to happen. He rarely misses on the big picture. Thank you once again, Bill. You're the Trading Wizard!

Good luck to all.

permit me to clarify - paper trading account. I'm learning the worse in my apprenticeship, without greater damage than that to my ego. great time to be alive.

Futures market is moving VERY fast. Faster than humans can comprehend at times. I don't think it got this crazy even in the fall of 2008. I see some bars where it was moving $300 per contract per Second in the NQ. fwiw, I'd turned off the charts around 10AM pacific with a small profit before it went nuts.

No way I'm taking part in this, that'd be gambling not trading. Besides, the risk of the trade software locking up is very high.

Ross - I hear you about that rule of thumb but I'm stepping in a little bit here at the close. I set aside cash for a downturn like this and bought too early in the day. I imagine people that happened to catch some of these crazy trades are sipping cognac.

It may be a one off, TF. My best guess is that monday will be an interesting day. Percentage wise, this was a pipsqueak compared to 1987. I'm hunkered down just watching the TED spread.

Funny that the Greek people are rioting when the Gothic Hun and Gaulios are getting fleeced. The Hun are not ammused. EURO... RIP.

SPQR

The Whole world will turn into GOLD now as the TRUSTED alternative Currency until this whole debts in the world disappear. GOLD is going to 1650 in the next few months, perhaps before year end and the DOWN Trend has officially started. This is not going to be a 10% correction as some would argue. This is ONLY the beginning for the market down trend. Basically the reverse picture of the day March 9, 2009.

More Europeans defaults will hit the wire in the next few weeks and people will turn around and look at the US and say hummm, the US has more debt than any country in the whole world and will start an aggressive attack against the US dollar next after the Euro Currency collapse. We may very likely see another stimulus package approved to save the US banks again when they go under yet again but lets face it. QE will work only short time but not forever. Just look at JAPAN in recession for 19 yrs and learn from that experience, will you ...

Feel free to comment if you like.

EDIT: deleted, duplicate comment

I am just curious why it's on the list when Spain is another (possibly next) domino in the EU. Kind of like when C came out with the "short financials" call a while back... just trying to peak behind the curtain.

Pretty much my only non-PM position that was in the green today. More impressively, it seemed to ignore the afternoon crash entirely.

Hard to believe the spike down in PG, especially considering it is one of the most liquid stocks in the market. I'm not so sure that move from $60 to $40 could occur without some exchange glitch happening.

vacationing. But not today! I will never forget today. ever.

I was actually in a meeting at work. got a "alert" and popped open my iphone, and saw triple digit jumps all the way down to -500 dow.

I quickly ran back to my pc to make sure my eyes were not deceiving me, and i was not dead.

Unbelievable move down. and somewhat of a recovery.

http://huff.to/daasOu

CNBC is the original source so i find it hard to believe. they are claiming:

"MARKET, STOCK MARKET, SELLOFF, DOW, TRADING ERROR, CITIGROUP, TRADING ERROR
CNBC.com
| 06 May 2010 | 04:21 PM ET
A human trading error at a major firm was the root cause of Thursday's sudden, 9 percent selloff in U.S. stocks, sources told CNBC.

Multiple sources said a trader entered the letter "b"—as in "billion"—when he or she meant to type "m," for "million," shortly before 2:47 p.m. New York time.

U.S. stocks plunged suddenly, briefly by more than 9 percent, before pulling back to a near 3 percent drop, as investor worries mounted that Greece's debt problems could spread.

Sources also told CNBC that the firm in question is Citigroup.

Citigroup said it has no evidence of a bad trade but it is investigating the situation.

The New York Stock Exchange reported there were no computer glitches in its systems Thursday.

Separately, Nasdaq said it was working with other major markets to review the market activity that occurred between 2:00 p.m. and 3:00 p.m.

© 2010 CNBC.com"

If you plot IWM and PG on the same chart for today, you will see that IWM was heavily selling off well before PG did. PG is not part of the Russel 2000 (chart: http://shockedinvestor.blogspot.com)

it was cnbc. so take for what its worth.

I mean c'mon. They are trying to say that 1 trader can press with his/her magic finger a trade to sell 1B, without any safety checks? not even a pop up on their station that reads "Are you sure you want to sell 1B shares of XYZ? Are you really sure?"

I think more likely than a fat finger, it could very well have been an orchestrated take down by some of the deeper pockets. The strategy may have been to cause major disruptions in a few of the most widely held stocks (PG, etc) to help incite a broader panic as the "stable" part of the portfolio triggers major losses. This leads to major stop losses being taken out, margin calls, and the panic selling of less liquidly traded stocks.

Guys - I mentioned a couple of weeks ago that someone was buying a ton of June 40 calls on the VIX. Well, those people either knew something or they had a lot of foresight. Either way, those people probably closed their positions.

I know a lot of people have different views than I do in terms of the markets but I have to think that this is the beginning of an opportunity to get into the markets for a trade at least. You have to imagine that on a day like this a lot of shorts hit their targets and people got stopped out. Just look at the volume and the huge price spike down.

Dead-nuts on, my friend.

When these guys are audited, the fallout of what is discovered and made public will rewrite 20th century history as we know it... taking down several nations worth of prominent historical figures/politicos/ and pundits along the way. The veil of plausible deniability will be torn from even the most ardent of spinmeisters and historical revisionists. The swell of anticipated populist animosity around the planet for these deceptions will make the greek riots seem quaint.

It will all come out in the end, I am confident.... but the stench of this financial cesspool leaves even the staunchest of our leadership nauseated at the prospect of the repercussions of cleaning it up. They don't know how to do it without inciting a lynch mob and they don't want to get themselves burned in the process. Most of them are quilty, if by nothing else than association... and many by a lot more than association. What has been going on with the controllers of our central banks and our financial markets represents the actions of only one branch of mankind's planetary government. There are many, many other issues behind the scenes that mankind must also confront. If chaos erupts, then our politicos' paymasters will proclaim justification in their clamor for the continuation of clandestine control.... the future for which they have meticulously planned includes conduits for the initiation and implementation of martial law, concentration camps, cessation of citizenry rights, and the implementation of an increasingly authoritarian police-state regimes. Their edict and mandate has always been that the masses must be clandestinely governed as they are incapable of civil self-discipline and comportment.

Mankind's collective denial, distraction, and ignorance allowed this crap to fester and enabled our leadership to play loose with the truth and our lives for generations. As such, we have to realize that part of the bargain of cleaning house and healing is an admission that we are not entirely innocent in all of this. In many ways we are confronting ourselves and what comes to pass on this planet in the near future will be a direct reflection of who and what we truly are. Chaos and calamity, or sober reflection with mature adjudication and resolution... progression and normalization of the police state, or a return to individual rights and freedoms... reclamation and implementation of repressed technologies, or continued dependence on destructive fossil fuels with attendant unnecessary plauges, starvation, and misery. The choice is ours to make and and now is the time to make it.

I will suggest that we all contemplate forgiveness. We can embolden those in positions of authority to make the hard decisions that are in the interests of the masses. We can encourage timely disclosures in a relatively painless,peaceful and meaningful environment. We can repair rapidly, with intention, and in relative harmony.

Back under my rock.

In China they would take you into the street and shoot you on the spot.

You think the action in Procter & Gamble was weird, check out the nosedive on Accenture, which plummeted from above $40 at 2:47 p.m. to $0.01 at 2:48 p.m.

http://blogs.wsj.com/marketbeat/2010/05/06/accentu...

I know as one of my IPO's FFHL Fuwei Films (Holdings) Co. Top guy was given that this year from the Chinese courts for his part in the IPO.

Translation:

"Some connected people lost money to non-connected people. We are cancelling those trades. All other trades will stay as is."

Once again I have to point at gold priced in euros. Its gone vertical. This is what goldbugs expected to happen in 2008 - people fleeing to gold in times of trouble. And these last few months, gold has not disappointed. Today it was up 2.82%, while the buck was up only 0.87%.

Here are a few things I'm thinking about.

The crisis in europe has moved from banks to sovereigns. This took two years, but now this crisis will have to play itself out - much like subprime had to. Banks can be bailed out by states, but euro sovereigns are a different story. The only source for a bailout is the ECB. The ECB could print money and buy bonds, or the EU might figure out a way for the overly-indebted sovereigns to restructure. My guess is, money printing, otherwise they'd end up taking bank losses on Spain, Portugal, Italy, and Greece. So - money printing it will be. It may start out limited, more of an engineered short squeeze on Greek bonds. Might it actually be temporarily euro-positive if the ECB decides to print money, grab some Greek bonds, cause a massive rebound, sell the bonds at a profit, and then announce a restructuring?

However, eventually the ECB will need to support all of the PIGS, or else the euro region will break apart. Germany will have to choose between the EU or the status quo ante, and my guess is they'll choose EU, but the price will be a much stricter system of financial discipline. In the meantime, the Euro will be effectively devalued, which should help German manufacturers, hurt China and the US, and cause significant inflation in the euro region. Gold in euros will soar. But at the end of the day, the Germans will end up in charge - a political union under German terms.

So - a debt/banking crisis, becomes a sovereign crisis, and then it becomes a currency crisis followed by a default or devaluation.

The SEC should be up ALL NIGHT if necessary investigating these trades that tanked the market. Where did they come from? It shouldn't be that freakin' hard to get to the bottom of it. But PLEASE don't insult us with this refund at 60%. How arbitrary is that! What banks do we need to riot on tomorrow to get some answers?

07:49 AM [NYX] Spokesperson: Euronext Lisbon trading suspended due to technical reasons; not known when trading will resume

14:47 *DOW MOVES BELOW 10,000 for the first time since Feb 12

3:11 PM
Procter & Gamble Co *NYSE INVESTIGATING P&G STOCK MOVE
- Note: P&G stock traded as low as $39.37 which coincided with the Dow move below 10,000 after trading above $60 for most of the day. Low price was printed on the Nasdaq.
- Note: P&G stock DOW weighting is approx 4.38%

- NOTE: ACN stock traded to $0.01 from trading most of the day above $41

- follow up: P&G spokesperson says they are looking into the matter. They note that trades below $56 came in electronic trade on the Nasdaq.

16:28 Nasdaq: Investigating potential 'erroneous' transactions between 2:40-3:00; participants should review their transactions

Vad- Would appreciate hearing from you.

Here's my take-

(a) The market really did crash today.
(b) The post-mortem explanations are buffalo chips.
(c) ST buying/short-covering would be enough to explain the 'recovery.' Let's face it, bears were looking at unreal gains, and like all good traders, they tripped over themselves trying to lock those gains in. I mean, how long have they been waiting for any gains at all?

The remainder of the crash will unfold over the next few trading days.

I could add:

(d) Whole event shows just how fragile the market is after such an extended rally and how much fear is stocked under the surface.
(e) Technology giveth, technology taketh. Not a first time I see erroneous trades followed by prints being broken. Can be brutal on someone caught with trade initiated outside of cancellation time window and completed inside it (or the other way around). Happened a few years ago to one of my room members on WATG trade soon after it IPOed. As painful as it can be, NASDAQ rules provide for the definition of erroneous trade and possibility of it being canceled. Just a danger that comes with territory. I also knew a guy who hit an offer at $101 after market hours on $11 stock... was he happy to have his print canceled? You bet.
(f) Whatever happens next is simply another trading day (week, month). There are people who think they know or need to know what is going to happen. I don't. It doesn't prevent me from trading either.

225 Nasdaq stocks' trades cancelled ...

I must say Vad, the most successful trading I've done over the past 6 months was day trading futures. The risk was strictly limited, there were no gaps down, stops worked great, everything was very controlled, and at the end of the day you could go relax and not worry about where things were going to go the next day.

Dave,

for various reasons I prefer stocks but other than that I sign under each word you said. Risk control and exploiting familiar patterns constitute the difference between trading and gambling for me

bigwad1 says 'and realize GS isn't alone in the fraud'. That goes without saying, but I'm glad that you did. Time will tell who are friends of whom.

This slippery slope began when Merrill went public. ERISA was/is a cruel joke. Government, both Federable and Munisimple employees have been sold a bill of goods. Retire after 20-30 years? What hubris AND it was all pay as you go for the most part. Even if partially funded, the board or actuary who came up with 9% annual returns needs to be shackeled in some dark hole and fed maggots.

I think it was O'HENRY who first coined the term 'Banana Republic' when he tried to escape Texas justice by fleeing to Central America. I humbly offer the observation that we will become a nation of doublewide dwellers. A good wood stove, fatback, rice, dry beans and collards might get you another year down the road to perdition.

Morgan Stanley is next!!! Maybe Citi, I hope!

Trying to wrap my head around the announcements that many trades that occured between 2:40-3:00 PM ET will be cancelled by the exchange. If you were one of the lucky folks to purchase some blue chip stocks for pennies on the dollar between 2:40-3:00 PM and then you sold after 3:00 PM, do you now have a (perhaps underwater) short position that needs to be covered? That could cause some serious issues considering how much leverage you might have gained prior to the cancellation.

Imagine thinking for a bit that you made a lifetimes fortune in 5 minutes only to realize you have a big underwater short position? I'm not leaving it out of the realm of possibilities that we see a huge short covering gap up tomorrow. These markets are nauseating.

I have a theory: anything jerking fast and hard on the money string will distract a lot of people from the one thing that is just too huge and horrible to contemplate playing out in the Gulf of Mexico, our own precious back yard. BP and all their bought-off safety regulators put in place by the previous oil happy adminstration's pals is so sickening we can hardly face another dead bird or turtle or swirl of sickly orange stuff over the 3500 square miles of ocean that will be dead for generations. Somebody switch cameras please! Our dying ecosystem is a far greater loss than some monetary dive of the DOW. So Exxon Mobil was taken down in the slide today --an ironic slip of BP's buddies with fat fingers playing with our heads or what?

http://www.huffingtonpost.com/robert-f-kennedy-jr/...

Loannetter,
As much as I admire your expertise on the holocaust, aka housing bubble, I must differ with your blanket charge against my Buds in the all bidness. Granted that the ecosystem is somewhat at risk but do you truely believe that ANYONE was so callaous that they would shoot themselves in the foot?

One could argue that the stupidity and greed of unregulated mortgage brokers cost this country many multiples of the accident in the gulf. How do you clean up the stench and pollution of Mr. Raines and HIS cronies in the mortgage markets?

I guess my sense of financial pollution is different than your oily birds. No matter. I just look for what really matters in a complex system. Oily birds and beach glop are not on my radar.

Bill,
GS CEO agrees with you that conflicts exists and they just manage it. It hard to lose when you get to manage conflicts eh?

Blankfein: Goldman must recognize doubters
http://www.reuters.com/article/idUSTRE64455Q20100506

"We shouldn't shy away from the fact that there are conflicts in this business and the potential for conflicts and that what we do is manage conflicts," Blankfein said, according to the CNBC broadcast. "It's not the conflicts, but how you manage the conflicts that shows your quality and your character."

when the newspapers and politicians are trumpeting the virtues of Australia's economy:

"On Thursday, Australian Bureau of Statistics (ABS) said retail sales rose by just 0.1 per cent in the March quarter for a 12-month growth to March of 1.2 per cent - the weakest annual figure since July 2001."

The cash cheque provided to Australians to go out and spend did the trick for the hi-fi music store reporting - last years sales being very strong - but it looks like no money from Uncle Rudd, no honey from the Australian consumer. This as the RBA continues to up interest rates.

http://au.biz.yahoo.com/100507/2/2crx8.html

ALOHA!!

A lot of obvious stuff ... yes! As a survivor from the TECH BUBBLE I still cannot get past the fraud that Blodget and Meeker perpetrated in the high flying days of the dot-coms.

If you read back to this PBS link you will see Merrill Lynch + Blodget was caught the same way Goldman Sachs + Tourre were caught, via e-mails. Blodget, in 2000, sounds a lot like Tourre now. Here is one example.

STOCK: EXCITE AT HOME(ATHM)
6/3/00: Merrill Lynch published rating: 2 (accumulate) -1 (buy)
6/3/00: "ATHM is such a piece of crap!" -Henry Blodget E-mail

So as you see "conflict of interest" was still around even with Glass-Steagall ...

To me what Blodget and ML did then was and still is out and out fraud, yet Blodget was allowed to "settle" for a $2MIL fine and he agreed to be barred from securities. How many people following ML back then in 2000 lost money thanks to Blodget? Yet no criminal charges. No deterrent there! Imagine if this same "justice" was applied to BANK ROBBERY. Standing outside the bank the police and the bank robber talk ... "Okay Mr. Bank Robber, how much loot did you get?" $5MIL ... Okay, pay a $1MIL fine and you can go. We'd all be robbing banks! Small wonder "fraud" on Wall Street is still JOB ONE!

LINK: http://www.pbs.org/now/politics/wallstreet.html

It seems the crimes just keep getting larger in terms of dollars while the jail time is virtually non-existent. Plenty of laws we have ... where is the justice part?

Ross, Mr. Kennedy is quite an expert on these things being a lawyer and academic and environmentalist of the acutal informed sort. How callous can you be about the decimation of our fragile world by sheer stupid evasion of the most basic safety precautions for what...less than a day's production? No amount of money will cure the ocean and miles of death for generations. Your Buds are already ducking.

Sling your 'all' at my profession if that makes you happy... 'somewhat at risk' is how I feel here sometimes. I appreciate that you, I, oceanic ecosystems and your complexities of choice could choose to acknowledged each other's right to exist on the same planet, hopefully without killing our host.

Kaimu,

They do get one's hopes up for a bit don't they? Tossing out a headline with postering politicos standing against the forces of evil. Scene change done deal all over. Sick.

Vad, if having skype is anything as annoying as listening to this guy shouting from the pit, I think I prefer to keep the calls in writing :)