Bill Cara's Blog for Oct 31, 2011

Accumulation Zone: Monthly 5, Weekly 2, Daily 0
Distribution Zone: Monthly 11, Weekly 10, Daily 53

Good morning.

09:45 Chicago PMI

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AET - Aetna upgraded to Conviction Buy from Buy at Goldman. Price target is $54.

BRCM - Broadcom upgraded to Outperform from Market Perform at JMP Securities with a $42 price target citing positive industry channel checks.

GSK - GlaxoSmithKline upgraded to Outperform from Neutral at Cowen citing attractive valuation, pipeline opportunities, and increased confidence in its respiratory franchise.

JNPR - Juniper upgraded to Outperform from Sector Perform at RBC Capital based on reduced expectations, product backlog, and new products. Price target raised to $33 from $24.

NVS - Novartis downgraded to Neutral from Outperform at Cowen citing disappointing pipeline delays and regulatory headwinds.

SNDK - Downgraded to Neutral @ Sterne Agee. Target $58

WFM - Whole Foods initiated with a Neutral at JP Morgan. Target $76

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"Great is truth, but still greater, from a practical point of view, is silence about truth. By simply not mentioning certain subjects... totalitarian propagandists have influenced opinion much more effectively than they could have by the most eloquent denunciations." ~ Aldous Huxley

Translation:

"The bleak outlook for the bond holdings of the banks could be improved if the savings accounts everywhere were stripped of value by money printing, with the proceeds being pumped into buying the bad bonds of the peripheral eurozone countries turning bad trades into good ones. Unemployment of course would be unaffected, but it has been proven to be a useful propaganda tool to 'explain' the reason to once again steal money to benefit the banks and keep their executive teams who were responsible for the bad bets in place."

ALOHA!!

Well, its only $32 of debt for every $1`of market cap. What's wrong with that risk management strategy?

At least for the morning LOL. Is this the new normal for the rest of this decade?

The Feds sure act quickly when its the banks that get hurt.

http://smdailyjournal.com/article_preview.php?id=2...

Three San Mateo real estate investors and one who does business in the county have pleaded guilty to rigging public foreclosure auctions outside the courthouse in Redwood City by agreeing not to bid against each other, according to the Department of Justice.

The men used the U.S. mail and Federal Express to send the Trustee’s Deeds Upon Sale and other title documents to others in the conspiracy, leading to the mail fraud charges.

“The collusion taking place at these auctions allowed the conspirators to line their pockets with funds that otherwise would have gone to lenders and, at times, financially distressed homeowners,” said Sharis Pozen, acting assistant attorney general in charge of the DOJ’s antitrust division, in announcing the pleas.

The antitrust division has an ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in the Bay Area. To date, 18 people have pleaded guilty.

CVX - Bank of America-Merrill Lynch lowers the key Dow component to Neutral from Buy.

Dies anyone know if this is a one time shot or a longer campaign?

FXstreet.com (Barcelona) - Canadian GDP increased 0.3% in August, following a 0.4% rise in July, according to data released by Statistics Canada. Analysts expected less growth of 0.2%.

http://www.fx360.com/calendar/

CSCO - numbers upped at Oppenheimer. CSCO estimates were boosted through 2013. Channel checks show solid business momentum. Outperform rating and new $21 price target.

CVX - Chevron estimates increased at Jefferies. CVX estimates were raised through 2012. Company is leveraged to higher energy prices. Buy rating and $120 price target.

DIS - numbers lowered at Evercore. DIS estimates were cut through 2012. Cable network and studio growth could fall short of expectations. Overweight rating and new $42 price target.

FSLR - numbers cut at ThinkEquity. Shares of FSLR now seen reaching $57. Estimates also lowered, given slower demand. Hold rating.

INTC - estimates, target boosted at Credit Suisse. Shares of INTC now seen reaching $32. Estimates also upped, as emerging markets should drive growth. Outperform rating.

MSFT - estimates lowered at UBS through 2013. Gross margins under pressure and need to return to explicit guidance. Buy rating.

Apparently other traders were also affected — some banned from the floor and others whose trades were entered and then rendered unreachable and at risk. (per CNBC interview with Rick Santelli).

It was mentioned that Corzine has a $12M good-bye package, so he will be well taken care of.

More fuel for OWS.

Grym

Check out MF Global's list of big creditors.....JP Morgan, Deutsche Bank, even CNBC:

http://is.gd/cI3Bv2 (MF Global's Bankruptcy Filing)

After Corzine nearly bankrupted the state of New Jersey, one would think that some red flags would be raised regarding his financial dealings. No?

These criminals need to be brought to justice. I vote for lethal injection.

I played with this some more and the weekly and monthly OBV paint a different picture. I'm not sure why daily OBV shows skewed results on FXE.

Well said! I gave up on Manulife 2 years ago after taking a good haircut on the shares. Some analysts continue to rate it a buy - doesn't make any sense to me.

Want to really get sick? Look at a chart of Hartford Financial from Jul 2007 to March 2009...although it's recovered somewhat since then, most of the insurers took a hit in 2009, Lincoln National, MET, others.

http://on.ft.com/tuvESR

The eurozone rescue fund has scaled back a planned bond issue designed to finance the bail-out of Ireland amid uncertainty over the level of demand.

The offering will provide a key test of investor sentiment after the announcement last week of new plans to tackle the eurozone debt crisis.

The bond from the European Financial Stability Facility will only target €3bn, instead of €5bn, and will be in 10-year bonds rather than a 15-year maturity because of worries over demand. A 10-year bond is more likely to attract interest from Asian central banks than a longer maturity.

This is a facility which will be leveraged to €1 trillion and is struggling to find buyers for this measly amount of debt.

I think that was part of the plan in forcing the banks and bond holders to voluntarily take the 50% haircut...to avoid triggering the CDS's. Can you imagine what the situation worldwide would have been if the counter parties were dragged into this quagmire?

LOL!

Well, YES! But imagine, if instead of their deals just souring because those CDS's are more or less worthless, if they actually had to pay (make good on the swaps instead of just a broken up front deal) and that house of cards really went TU!

They lucked out. It could have been much worse with a domino affect.

Some recent posts linking the two are confusing. MF Global and Manulife are two totally different companies!

Dr SL,
This is what I had read on the topic.

Wed Oct 26, 2011 8:45am EDT
(The following article was published IFRe.com, a Thomson Reuters publication)

By Christopher Whittall

LONDON, Oct 26 (IFR) - Markets analysts are in disagreement over whether the latest plans to restructure Greek debt would trigger a credit event for credit default swaps referencing the sovereign.

Media reports have cited proposals as high as a 60% haircut on Greek government bonds - far higher than in previous negotiations - but indicated any participation in such an exchange would be voluntary.

Following the letter of the law, this should not trigger CDS, but some analysts have expressed doubt over whether a haircut of this size would work on a non-mandatory basis, as it would be unlikely to attract enough bondholder uptake to make it viable.

"It all depends on the facts, but on the straight reading of the clause, if this doesn't bind all of a reference obligation's bondholders then it's not a restructuring credit event," said Edmund Parker global co-head of the derivatives and structured products practice at Mayer Brown.

"It's clear that they're trying to make this voluntary so it's not a credit event, which of course calls into question the value of purchasing Greek sovereign CDS," he added.

I my mind, even if this doesn't trigger the CDS's, it's still like an insured calling the company and cancelling his auto policy because the car was repoed by Merkozy bank. If you wrote enough of those policies and get enough cancellations it doesn't really matter if you had to pay out or not.
IF MF had to pay out, I'm sure they also had some instruments in place that paid them. But if the CDS's don't trigger they take the loss without the offsetting policies kicking in for them.

Of course this is all based on "voluntary" hair cuts. I'll bet there are/were a lot of bond holders on the phone with their lawyers the last week or so, if not before. No body is going to take 50-60% killing without a fight.

Jack black -

The vast majority of forex trading does not happen via FXE. FXE is the tail that is wagging, rather than the very big dog. FXE is just a bunch of euro bank deposits at JPM, more or less. Thats why I'd guess that OBV isn't showing you anything meaningful there.

I met this young 30 something German a few years ago, and we keep in touch from time to time. He's working in banking and asset management in Germany, so I asked him to offer his perspective. He wrote:

"Usually, I read your newsletter because Im eager to know what happens over there in Canada! But when I read your newsletter last week, I was especially wondering what Canadians might think about what`s going in on in Europe right now.

It is obvious that Europe is going through quite hard times these days and in the meantime most polititcians and people have realized that the reason for our recent challenges is spending more money that one has. Everybody is focusing on Greece right now because the exaggerations following cheap money have been worst down there. But we shouldn`t forget that many western countries had, on average, increasing deficits during the last fifty or sixty years (including Germany, France and the US for example). I personally hope, that the current situation in Greece, which is a smaller country than, for example, California, makes people and politicians around the world aware, that a strong budget discipline is of tremendous importance to assure wealth in the future. The big picture over here in Europe is, that we had 66 year lasting periode of peace following World War II, which might be due to a steady process of integrating European countries. This process startet in 1957 with the "Rome Treaty" where six countries decided to form something like the European Union and had its peak with the introduction of the Euro 12 or 13 years ago. I feel and hope at the time that there is a strong desire and willingness to proceed with this process of integrating European Countries. Many experts knew that it is very challenging to have only one currency for different countries (flourishing, low interest rate coutntries like France, the Nehterlands or Finland on the one hand and poorer countries like Greece, Spain etc. on the other hand) but probably as a consequence of a seemingly neverending source of cheap money, we -ex post- didn`t take these points serious enough. Now we have a big mess and we should fight hart to get out of it!!! Our chancellor, Angela Merkl hopefully can play a leading role in bringing at least the opinons of 17 Euro countries together (which is probably the biggest challenge compared to other economies that just consist of one country, like the US). She is definitly a very focused and analytical person who can form an excellent counterpart to the two testosteron pumped guys Sarkozy and Berlusconi. But it is way to early to tell whether or not the latest rescue actions will be successful or not. It is definitly a good sign that the banks bear parts of the burden after years of making good money with it and it is definitly a good development for the banks in the world to operate with a lot more equity in the future. A big part of the huge bill may be paid by the tax payers especially in strong countries but I´m convinced that we can handle it, if we work hard. There are a lot of really clever people in almost all European countries and many, many real good small and mid cap companies with market leading positions. If we focus on these real value adding businesses instead of focusing on gambling players in the financial markets there is a good chance to further create wealth and to get rid of our debt (hopefully without a big inflation). Let`s cross our fingers that we finally learned our lessons!!!"

BH -

Two schools of thought here.

1) the government should not be in the R&D business. Downsides to this may be, the existing paradigm currently never changes because existing monopoly power uses its power to stifle, buy up, or make illegal threatening technologies.

2) the government sponsors risky projects. For every project that wins, 10 fail. Downside to this is, many projects fail, and a lot of money gets wasted.

Do you know the success rate of venture capital firms in the Valley? Hint: it's not 100%. I've seen numbers like 1 in 20 make it to IPO. And in the business plan, they all have to show a path to break-even in 5 years. If "the internet" was brought before (pick your VC firm), it simply wouldn't have been funded.

Should the government be in the business of funding risky efforts in strategic industries on the chance one of them will succeed and create the next Internet - the way DARPA did for the last Internet? Its a messy process, but it seems to have worked out fairly well so far.

Back in the day, Ma Bell got to be the gatekeeper for each and every device that was attached to any phone line. If Ma Bell was still in charge, no doubt we'd be using ISDN (64kbps should be enough for anyone), and there would be no Internet, simply because Ma Bell would still be just now finishing depreciating the #1ESS switches built in the 1960s and why would people want to see files on each other's computers anyway? Just coming up with the tariff for that would take 10 years. And how would you bill for that? And if Bell Labs didn't develop it, it just wasn't going to be allowed to exist.

To give you an idea of just how suppressive Ma Bell was, take a look at the Hush-A-Phone case, decided in 1956:

http://en.wikipedia.org/wiki/Hush-A-Phone_v._Unite...

AT&T, citing the Communications Act of 1934, which stated in part that the company had the right to make charges and dictate "the classifications, practices, and regulations affecting such charges," claimed the right to "forbid attachment to the telephone of any device 'not furnished by the telephone company."

Its even more amusing/appalling once you figure out exactly what the "hush-a-phone" really was.

This is the 3rd attempt to weaken the yen.
1. G-7 intervenes to weaken the Yen March 18, 2011
2. Bank of Japan intervene to devalue the yen August 4, 2011
3. Last night.

I put my doodles on the Finvix Daily chart for the Yen.
It's a bit difficult to fight market forces for too long.

October 31, 2011 7:28 pm

Greece’s prime minister has unexpectedly announced a public referendum to approve a second EU bail-out agreement for his austerity-hit country, less than a week after it was agreed with international creditors at a European Union summit.

http://www.ft.com/intl/cms/s/0/68748490-03f5-11e1-...

Yes, I monitor this too and sure enough, it didn't budge after the EU "rescue" announcement and didn't validate the October being the final low of the cycle. The analogies to the current chart pattern such as January 2009 and August 2010 had at least falling $TED.

"Voluntary 50% to 60% haircut?! That's like volunteering to stick your hand in a blender to get your Bloody Mary."

LOL! You won't get any disagreement from me!

I think the threat was something like, "take the 50% haircut or we will let you hang in the breeze and take 100%".

Say what you will about Merkozy, those two have a lot more balls between the two of them then Bush, the Bernank, Paulson and Geithner all together.

We live in interesting times.

I don't know the answer. But, I'm concerned Greeks will vote NO as they are very pissed. Don't know if that will derail the Eurotarp.

' Go deep '... gold to $ 3,500 by next December.

Sorry a tad late....I waited until today so I could get the new month's data:

http://tradinglog.realitytrader.com/2011/10/nemos-...

From Jesse's Americain Cafe in the spirit of the holiday.

http://2.bp.blogspot.com/-Sd6Jx5Mow2E/Tq8cdWxyW8I/...

Boo!

http://tinyurl.com/64zku7a

I'll be very good (except Thursday night.)

pulse

A quick look in at Twiggs's diary pre market was enough to satisfy me on the day's likely outcome:

Several weeks ago, when asked what it would take to reverse the bear market, I replied that it would take 3 strong blue candles on the weekly chart followed by a correction — of at least two red candles — that respects the earlier low. We have had three strong blue candles. Now for the correction.

On the S&P 500 expect retracement to test support at 1200 or 1250. Respect of 1250 would signal a strong up-trend, while failure of support at 1200 would warn of another test of primary support at 1100. A trough on 13-week Twiggs Money Flow that respects the zero line would also indicate strong buying pressure.

http://www.incrediblecharts.com/tradingdiary/2011-...

'Living in denial'(i.e., bucking the popular trend) is perhaps the best state a trader can hold in order to maintain multiple if-then scenarios and as Bill proved, taking that setup which leaves one most uncomfortable proves to be the most profitable. So having forgotten he is in denial, Twiggs offers a view that rhymes with my charts - that should be important to any trader wishing to think for themselves.

I'll use the $DJIA. The 4hr/4day tells me a lot of things. Price reverses at the sole horizantal trendline I've added - KISS. Note the utility of Andrews Pitchfork (see especially the monthly chart attached).

Stochastics is a funny little indicator and once again in the 4 hour time frame an ascending triangle sets up. It coincides with price hitting a particular resistance target - my cue to short if I felt so inclined or otherwise tighten up stops as the market prepares to test new support.

Now, without looking at Twiggs diary entry, I'd like to ask people - especially those new to the game - to take a look at that 4hr/4day Dow chart and create if-then scenarios for themselves.

Where would you be looking for prices to likely find support and turn, if we're to rally into EoY? If they do find support, where would you buy and where would you place your stop? If the support you've mentally noted doesn't hold, what will you do?

Having thought that, go take a look at Twiggs thoughts and confirm or contrast your opinion with his.

You can also compare and contrast your thinking to Geoff, who as noted this morning is busy preparing buy orders for quality stocks Cara Trading want to own at lower prices.

I have no skin in this game but posting these thoughts help me to align a mind map with changing market conditions - keeping the brain in the game so to speak. If Santa delivers I could definitely be interested in returning to the market - Bill's offer of what appears to be a closed end fund coming soon appeals to me immensely. I'll happily let Cara traders decide upon various portfolio weightings and entry and exit points.

Last thing - let's look at the Dow Jones from 30'000ft. If the support Twiggs suggests holds and we continue an advance into EoY then perhaps the monthly is telling us that a new advance could be on the table in 2012. What do you think?

Shanghai Futures Exchange steel contracts settle lower, tracking SHFE metals amid uncertainty over China's economic outlook after worse-than-expected October manufacturing data. China's largest private steel mill, Shagang Group, lowers prices of rebar and wire products for November delivery, indicating its gloomy outlook for the sector, which analysts say may increase pressure on prices in the next few sessions. A Shanghai-based analyst tips nearby support for rebar at CNY4,000/ton. Benchmark January rebar settles CNY28 lower at CNY4,090/ton; May wire settles CNY18 lower at CNY4,123/ton.

bbarberayr,

is MFC still a buy after reporting a 1.28B loss?

http://www.cbc.ca/news/business/story/2011/11/03/m...