May 30 (Bloomberg) — Federal Reserve Board Vice Chairman Donald Kohn raised the possibility of giving Wall Street securities firms permanent access to loans from the central bank, as long as regulators tighten oversight of the companies.
Kohn also advocated continuing Fed auctions of funds to commercial banks and loans of Treasuries to Wall Street dealers even after markets stabilize. Such channels would stay open “either on a standby basis or operating at a very low level,” he said in a speech in New York yesterday.
The remarks go beyond Fed Chairman Ben S. Bernanke, who has indicated the central bank would shut lending to investment banks when the credit crisis passes. Lawmakers and regulators are debating how to approach the supervision of investment banks in the aftermath of the Fed’s rescue of Bear Stearns Cos. in March.
“If you are a bondholder in one of these Wall Street firms, you know you have a big `Sugar Daddy’ now called the Federal Reserve that’s going to back you up,” said Jeff Pantages, chief investment officer of Alaska Permanent Capital Management in Anchorage, which oversees $1.8 billion in assets.
“But if you are a stockholder this kind of worries you” because investment banks “will be more highly regulated and won’t be able to use leverage as much as” before, he said.
Kohn said he hasn’t decided whether securities firms should continue to gain access to loans from the central bank. Read more here.
I have been talking about an expected wave of bank failures for quite some time, most recently in Too Late To Stop Bank Failures. Recently I was asked to compare the current crisis to the 1980′s S&L Crisis in regards to to whether or not this crisis will be worse.
By sheer number of failures the S&L crisis will dwarf what’s coming hands down. Here is a chart from MarketWatch that tells the story.
However, numbers alone are not the proper way to measure things.
A proper focus must include an analysis of the magnitude of the failures, who will be affected by those failures, and what actions the Fed might have at its disposal to handle the situation.
Let’s start with a look at bank consolidations. Following is a history of just one bank, courtesy of Mr. Practical :
Roll Up
Here’s an incomplete list of former financial institutions that now comprise what is known as JPMorgan (JPM):
Bank One
Chase Bank
U.S. Trust
Manufacturer’s Hanover Trust
Chemical Bank
First Chicago
National Bank of Detroit
First U.S.A
Bear Stearns (BSC)
Of course there are thousands of smaller financial institutions that have been rolled up into this behemoth. Many of us believe that the last and most famous "acquisition” was really a bail-out of JPMorgan, the deal in reality injecting some $50 billion of capital into this amalgamation of finance.
So what you say? Well I think as we watch bank after bank (Royal Bank of Scotland(RBS) this morning as an example) take recurring “one-time” write-offs we can begin to see just what a ponzi scheme this has been over the years. Banks book loans, mark them up in value, and show the difference in profits. They’ve done the same thing with the phantom book value these deals present when consummated. Over the last few decades banks have not really made any money; they have merely been a conduit for the Fed to create massive credit. The U.S. money supply is now over 99% debt.
The ponzi scheme is unwinding and investors continue to be gullible. Those that bought Citigroup (C) on its dilutive stock offering are now over 20% in the red.
Global stock markets topped out on the back of the sub-prime/credit debacle in October 2007. Prices subsequently moved lower until reaching climatic bottoms in January/March this year, triggering rallies throughout the world until a few days ago. The big question investors are grappling with at this stage is whether the rise in prices has simply been a bear market rally, or whether we’re back in a primary bull market.
I have previously said: “Whereas I am doubtful about the longevity of the rally, I am also not in the Armageddon school. Is the answer perhaps a ‘muddle-through’ market, characterized by below-average returns? That is my hunch, for what it’s worth.” (See post entitled “Poll of the Week: Stock Markets – Which Way José?” from April 25, 2008.)
In searching for answers, it’s appropriate trying to get a grip on the direction of banking stocks in names like Citigroup (C), Lehman (LEH) and Morgan Stanley (MS), as these are usually a good indicator of the market as a whole, especially given the large proportion of financial services of many major stock markets.
The following is a long-term chart of the S&P Banking Index relative to the S&P 500 Index, clearly showing the massive underperformance of banking stocks since the middle of 2002.
I’ve pulled out a few fundamental graphs pertaining to the US situation in order to assist in gauging the lay of the land.
Firstly, as far as lending standards are concerned, US banks are still in tightening mode.
Sources: Federal Reserve Board; I-Net; Plexus Asset Management.
But it would appear that the lending standards could start easing during the current or next quarter, at least when considering the historical relationship with the Fed funds rate.
Sources: Federal Reserve Board; I-Net; Plexus Asset Management.
Interestingly, banking stocks have historically started outperforming the S&P 500 Index around two to three quarters before lending standards ease.
Sources: Federal Reserve Board; Bloomberg; I-Net; Plexus Asset Management.
The relative performance of banking stocks is largely driven by the “mortgage margin”.…
Excerpt: Sigma Designs (SIGM) shares are down sharply this morning after the company late yesterday disclosed disappointing results for its fiscal first quarter ended May 3. As Tiernan Ray noted in a post yesterday, the company missed the Street consensus at both the top line and the bottom line.
The company’s post-earnings conference call (seetranscript) was less than encouraging. Sigma said it expects FY Q2 revenue to be up slightly on a sequential basis; given the $56.9 million reported in Q1, the old Street consensus estimate of $69.2 million clearly looks way too high. In response to a question on the call, the company indicated that its old guidance of revenue for the full year of $300 million to $350 million was no longer valid, although it did not actually provide new guidance.
“I think as a result of this call and what we indicated we’re pulling away from that range,” VP of strategic marketing Kenneth Lowe said on the call. “I think at this point in time we’re going to pull that guidance.”
The company seems to be facing significant issues in both of its two primary businesses: providing chips for IPTV set-top boxes and for Blu-Ray disk players…
We finished the week up just slightly with some good consolidation but, as it was the end of the month, I was a little suspicious about the action into the close. Volume was not terribly impressive but there was a huge surge as we sold off into the close, hopefully just some funds cashing out but not the way you want to end a week.
We made good progress on our portfolios with fantastic gains in our small portfolios with our 2-week old $10,000 Portfolio already at $13,965 and our new Day Trading Portfolio up a decent 10% in 10 days of trading. Also new is our Stocks Portfolio but that’s up just 2% in two weeks as there wasn’t enough volatility to play around with.
Our older portfolios also held their own:
The Short-Term Portfoliopicked up 8% for the week as we went a little more to cash and are, overall, quite bearish with a lot of open puts covering not too many longs.
Our Long-Term Portfolio added just 4% and is still fairly bullish with 23 uncovered calls. We are still well covered on 30 other positions and, of course, our STP puts outweigh the open balance on the calls by a good deal (about 50%).
Complex Spreads are flat, up 315% for the year, as GOOG and APPLE are fully covered so the run in both is not doing us any good at the moment. We are heavy in the CROX Jan $10s, still hopeful they’ll come back.
It was a good call to hold our position in the $25,000 Portfolio as we gained another 40% this week, now up 84% at $46,081. We took some bullish positions there in EDU and SUN and dismantled the FSLRfly, leaving just the $270 puts.
We closed just 55 positions this week with a 66% average gain, mainly taking winners off the table to get some cash when we had the opportunity but we are not that well protected from a big sell-off in our small portfolios so I’ll trust these gains only when we get to more cash. Meanwhile, we’ll have to watch carefully and see what sticks.
The Debt Slave Act, better known as the Bankruptcy Reform Act of 2005 has at long last blown sky high. We will get to "how" in just a moment but first let’s review some of the provisions of the bill. Lenders asked for and received everything on their wish list as follows:
Wish List
A strict financial means test that may prohibit many debtors from filing a liquidation bankruptcy under Chapter 7;
A requirement that all debtors must receive a briefing from an approved credit counseling agency at least six months before they can file their bankruptcy case; Note: Check with your local bankruptcy court to determine if they will waive the time restrictions in the beginning months.
A requirement that debtors take an approved class on debt management techniques before they receive their bankruptcy discharge;
A provision making it easier for a court to dismiss a bankruptcy case outright or to convert a Chapter 7 case to a Chapter 13 case; and
A provision permitting a court to impose sanctions on attorneys, or even on debtors, for filing a Chapter 7 case that is dismissed or converted to a Chapter 13 case.
After the fairy godmother (Bush) signed the bill written by industry lobbyists and passed by Congress as "reform", banks and lending institutions went on a credit binge of previously unimaginable proportion. The most ridiculous abuse of common sense were the so called "Liar Loans" more commonly referred to as "Stated Income Loans".
In addition, much of the subprime mess and the HELOC (home equity) can be attributed to lending institutions behaving as if Sixteen Tons was the new state of being.
You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don’t you call me ’cause I can’t go
I owe my soul to the company store
"When the price of oil starts to come down there will be some relief to the US airlines. I anticipate some form of government intervention before most of the airlines go bankrupt again. The "New" shares will soon be required to become "New New" shares.
From the pockets of US airline employees to those of the Middle East oil sheiks. You’d think somebody other than Texas oil people who are running this Administration and the past one would be able to take control after the government changes hands in January. Rather than taking a unified political stance against Sudan, as they did this week, you’d think the three Presidential candidates might first line up against the urgent problems that exist today in America, which is the food and oil one that is bankrupting the country….
The bottom line is that Stagflation is worsening, and I have never seen such conditions do anything but tear apart the prices of equities and bonds. That too will really hurt the whole financial group, leading to more losses and more staff cut-backs in future.
As I see it, the Bear market has just begun. Unless there is a sudden and sharp pull-back like 1987, the Bear could linger. As long as fuel and food costs stay high and the housing industry remains in shackles, I think the equities Bear could last through 2009…"
"I am impressed that more seasoned Wall Street people are speaking out today about the inequities in capital markets. Stephen T. McClellan CFA, is one whose views are quite similar to my own.
Author of Full of Bull, Stephen is a former Wall St analyst with 32 years experience, including 18 years at Merrill Lynch and eight at Salomon Brothers. He has ranked on the Institutional Investor All-American Research Team for 19 straight years and on the Wall St Journal Poll for seven years. He is in the Journal’s Analysts Hall of Fame.
Essentially, Stephen believes, as do I, both of us having been there for many years, that Wall St’s job is to shift investment risk to the buy-side, so the glass will always be at least half full. As you…
As I mentioned in last night’s wrap-up, it’s been a very low volume week and, on the whole, it’s been nothing to get excited about. We need to make some serious break-outs on our Big Chart levels and I don’t think that’s going to happen with oil getting it’s usual boost into the weekend, especially with Rent-A-Rebel now pre-announcing their plans.
The latest oil terrorist to run up the markets is CNBC’s own beloved Jim Cramer, who took time out of his busy schedule last night to devote 15 minutes of his show to misinform his viewers about oil. If you have any doubt as to how important this message is to Criminal Narrators Boosting Crude, just log onto www.cnbc.com and look at where this segment is featured.
Cramer interviewed the CEO of JOYG, who supplies mining equipment, and somehow Cramer managed to twist a legitimate, healthy demand for minerals, into proving his point about oil. Cramer’s premise, that demand automatically means short supply is flawed on many levels. If I have a mining company and you are paying me $86 a ton, I may run my mine normally (as it’s only $20 more than last year) but, if one month later, you offer to pay me $104 per ton, I may order a little more mining equipment to cash in while I can.
Yes there is a lot of demand for minerals and there are spot shortages, but they are due to delivery inefficiencies, not lack of availability. It is called a demand CYCLE for a reason and sometimes the demand outstrips the supply but, in a free market, higher prices put more supply on line until you get to a point of equilibrium. Speculators ruin the curve by creating false demand for product they do not intend to purchase causing miners to overproduce and commit to contracts with equipment makers like JOYG (a big Cramer pick) which eventually leads to a massive oversupply and crashes the market. Don’t worry though, Cramer and his pals will be long gone by then – off to put you into the next thing they are looking to get out of.
Cramer says (at the 2:00 minute mark) "The gap in coal could be 60 to 100 million tons this year, that’s massive, even the US… can’t make up that amount." While this…
We have made nice progress over last week but let’s not hurt ourselves patting ourselves on the back just yet as we still have oil at $125, which is still A LOT and we have still not broken out over the levels we didn’t break out over last week. Volume over the past 2 days has been very light so we’re going to need to see more to confirm an up move, even if we do get something solid. While traders have not all "sold in May," it looks like many of them have decided to go away so it could be a long, slow road to recovery.
The last time we did the Big Chart was Tuesday, the 20th and oil was trading right about $126. We generally lost a lot of ground in the past week and, as I said last week, we are just floating around in the range between our "Feeling Better" levels that we set way back in January after the big drop, and the critical 200 DMAs, which are proving very tough to break.
Jobless claims improve while leading indicators decline in today’s economic report card
by Wall Street Sector Selector Staff
Weekly jobless claims declined to 424,000 from last week’s 432, 000 but stubbornly stayed above the all important 400,000 level for another week.
August Leading Indicators came in at +0.3% compared to 0.5% for July, as the economy continues registering weakness.
Good news came from July Home Prices which rose to +0.8% from the previously reported +0.7%.
But the biggest economic news of the week came yesterday when the Federal Reserve said it saw “significant downside risks to the economic outlook, including strains in global financial markets.”
Global stock markets responded negatively yesterday an...
Shares of Priceline.com Incorporated (NASDAQ: PCLN) are trading higher in the after-hours following the release of its Q1 earnings results. Currently, shares are up 2.74%, trading at $548.60; they closed the regular session down 0.67 %, at $533.97.
The company said that its Q1 EPS came in at $2.66 on revenues of $809.3 million; this compares to the Street's estimate of $2.46 per share on revenues of $779.5 million. Revenues rose 38.6% year over year.
"In the 1st quarter, the Group benefited from strong growth in our global hotel business, particularly at Booking.com and Agoda," said Jeffery H. Boyd, Priceline President and Chief Executive Officer.
He added, "Room nights booked grew by 55.8% and our international gross bookings grew by 79% compared to prior year...
The damage control to the Fukushima explosion reported earlier is coming fast and furious. According to CNN, "the explosion at an earthquake-damaged nuclear plant was not caused by damage to the nuclear reactor but by a pumping system that failed as crews tried to bring the reactor's temperature down, Chief Cabinet Secretary Yukio Edano said Saturday. The next step for workers at the Fukushima Daiichi plant will be to flood the reactor containment structure with sea water to bring the reactor's temperature down to safe levels, he said. The effort is expected to take two days." While the government is trying to play down the threat from the explosion, it has nonetheless double the evacuation zone radius from 10 to 20 kilometers: "Radiation levels have fallen since the explosion and there is no immediate danger, Edano said. But authorities were nevertheless expanding the evacuation ...
Note from dshort: I retired this chart series last summer in deference to my prefered inflation-adjusted series that aligns the S&P 500 2000 high with the Nikkei peak in 1989. However, I continue to receive requests for this version, despite the "V" shape of the the recovery since the March 2009 low. This chart series overlays the current S&P 500 with the L-shaped "recoveries" after the Dow Crash of 1929, the Nikkei 225 after Japan's 1989 bubble, and the post Tech Bubble NASDAQ. Click the chart below for a larger version and use the links to see various comparisons.
Top 5 RisersStockRatingAnalysisVLOSTRONGBUYAn increasingly positive growth rate of past earnings, along with improving expectations for long term growth, make Valero a good prospect for high returns.KROSTRONGBUYKronos Worldwide has been gaining recognition from analysts as a good canditate for achieving higher than expected earnings along with higher overall projected valuation.SFIBUYiStar is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.AMATSTRONGBUYApplied Materials has been...
This post is for live trades and daily comments. Please click on "comments" below to follow our live discussion. All of our current virtual trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this portfolio, by clicking on the "comments" link right below.
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February is now past, and the Biotech Porfolio is loaded with winners and a miss (PLX). MRK is down a bit, but I expect that trade to recover, and one could be more agressive and double down on it, or play another round at the Jan13 $30 options for roughly the same price. Below is the summary, and note the grey boxes are ones that did not fill. I am still a fan of BMRN, and like DEPO as well. Now let's look at a few others.
Table 1. PSW Biotech Plays Since January 2011
 
Our newest play is Momenta Pharmaceuticals (MNTA), who is pursuing a three-part business model which includes complex generic equivalents in partnership with the Sandoz division of Novartis, proprietary compounds, and follow-on- biologics (FOB). It seems that this company is tied up in competition/litigation wit...
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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However, numbers alone are not the proper way to measure things.
Sigma Designs In Freefall; Backs Off Old FY ‘09 Guidance
That was a nice, short, uneventful week!
The Short-Term Portfolio picked up 8% for the week as we went a little more to cash and are, overall, quite bearish with a lot of open puts covering not too many longs. 
Well this week went by quickly!
Cramer says (
12,646 – Yipee, we’re back to our May 9th lows!
Pharmaceutical Facts
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(