Investment Banks, Real Estate and updates.

The recent technical higher high zig zag in the market shows the importance of why trading and using 3 day positions makes for profiting in this type of market.

The recent news of Merrill and its 23 dollar / share secondary and capital raise and the sale of bonds at 22 cents the dollar is showing signs of what a new CEO is all about. Citi is still holding back hoping for either higher pricing or movement higher in prices in the market. Those results can only come from stable home prices in the traunches most affected by this drilldown. Previous Mer secondary price offerings had to be repriced in order for the sov funds to write another check. This is actually the worst deal we will see this year for this type of transaction. We have just priced the risk for the year on these pools of investments. Even if real estate falls another 15 percent nationally, it appears this deal benefitted the buyers more then the seller in terms of forthcoming profits.

The new bond deal announced by the Treasury is more a press event then anything that can significantly stem the issue of lack of buyers. RE Agents are telling me sell-side is taking cash deals at lower offers then multiple offers at higher pricing that need financing. I think this will continue for the next 6 months as the FHA, Fed and the banks try to rekindle a new type of financing arrangement. Will we ever see 100 sq. foot deals in southern California? Not sure - but there is still alot of pain in the markets

Citi is next

Citigroup Inc. may follow Merrill Lynch & Co. by taking billions of dollars in losses on mortgage- related bonds, according to some analysts. Preferred-stock investors are making a similar connection between the companies.

The chart of the day shows the preferred issues sold by Citigroup, the biggest U.S. bank by assets, in January is tracking shares that Merrill issued three months ago. Lehman Brothers Holdings Inc. and JPMorgan Chase & Co. preferred shares are also included for reference.

All four firms sold these shares to raise capital after losses sparked by the subprime-mortgage market's collapse last year. Merrill will have a $5.7 billion hit from selling collateralized debt obligations to the Lone Star Funds investment firm at about 22 cents on the dollar.

Citigroup ``has been far less aggressive'' than Merrill in marking down CDOs, William Tanona, an analyst at Goldman Sachs Group Inc., wrote in a report today. ``They would struggle to obtain their prices in the marketplace.''

The securities are valued at about 55 cents on Citigroup's books, according to Tanona. Bringing the valuation into line with Merrill's would imply a $16.2 billion writedown and about a $2-a- share reduction in earnings, the report said.

Oil is coming near support levels at the 115 / 120 level. There is no momentum on the upside yet so we might see another week of selling until we spike bottom to create our new trading range.

The new law supporting the Fannie/Freddie bailout seems to be helping investors squeeze out the spread between the 10 year fed note and the private debt.
S&P said on July 26 that it may downgrade the
subordinated bonds of Fannie and Freddie. A cut would affect $19.2 billion of
AA- rated debt, according to data compiled by Bloomberg. S&P affirmed the
AAA ratings of the companies' senior debt.

We Continued to add to long positions on yesterdays sell-off in finacials and will be looking to unload positions in the next few weeks.

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1.4 Trillion Govt Bailout...


What is fair, what does it matter

A tidbit from last weeks news:

Yet last week, regulators gave a nice boost to Wall Street and other members of
the financial club. Christopher
, the chairman of the Securities and Exchange Commission, devised an
emergency rule change for traders wishing to sell short the shares of 19
financial companies, including Lehman
, Merrill
, Fannie Mae, Bank
of America
and Citigroup.
The rule states that if you haven’t borrowed the shares you intend to sell
short, you can’t make the trade. It extends until July 29.
There are several
interesting aspects to this change. First, if the S.E.C. believes that shorting
without previously borrowing shares is a problem in the market, why not apply
the rule to all stocks? After seeing many of the 19 companies’ stocks shoot
higher after the plan was announced, executives at General
, the American
International Group
and MBIA, companies whose shares have also been pummeled
in the financial crisis, must surely feel left out of the fun.

“The banks are too big to fail and the man in the street is too small to bail,” said John C. Bogle, the founder of the Vanguard Group, the mutual funds giant, who is a philosopher of finance.

Such is life...

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China.. a strong buy here..

China ishares FXI, buying the August 140 Calls, FAHHH - 4 Dollars. The olympics.. YIPEEEEEEEEEE.... International emerging markets look to rally from here as well. Our final counter trend move up before the next MAJOR move down before the end of the year.

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Picked up LEH Aug 15 Calls

Picked them up around 3.7 - We'll see where we end up in the next two weeks...

I am also short term bearish on the oil complex, and going short here on any rally

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Going Long

Huge jump in Wells Fargo caused me to take out my short for a decent gain. Been picking up the XLF here and XHB for a short term long trade. We think we have reached a bottom in this cycle within the bear market.

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ABC - Millionaire, song of the week

RIP Indymac Bank

IndyMac's pitch for careers is not longer up, but is memoralized here in all its glory:

"Why Indymac
At Indymac Bank, we're all about performance. Working here is a great opportunity, but it isn't for everyone. We're a demanding, fast-paced, meritocracy where what you have helped achieved, and what you have helped Indymac to achieve, is what matters most. With over 8,000 employees across the country, our entrepreneurial spirit ensures that nothing is ever good enough, there is always work to be done, and the hardest workers and greatest achievers are the people who rise to the top. Indymac isn't for everyone, but if you want to work hard, add value every day, and be rewarded based on your merits, then Indymac just may be for you.

Indymac's success is built upon our six core values. Lots of companies have mission and value statements, of course, but Indymac's aren't lofty goals we hope to achieve someday. Rather, Indymac's values define our culture and serve as the roadmap to success in your career here. If you're serious about a career at Indymac, you need to understand our culture and values. What are our Everyday Values?

Since its incorporation, Indymac has grown to nearly $30 billion in assets and a market cap of nearly $3 billion. Indymac is always focused on the bottom line. We are committed to growing—becoming bigger, becoming better, and becoming more efficient and effective every day.

With a strong focus on building customer relationships and a valuable consumer franchise, Indymac is committed to becoming a top six mortgage lender in the U.S. by 2010, while maintaining annualized earnings per share growth in excess of 15 percent. The company is dedicated to continually raising expectations and conducting itself with the highest level of ethics."

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Fannie - Freddie weekend chat

The options movement of both GSE's are showing a worst case scenario at this point. If the goverment steps in with some remediative plan, its more then likely going to mean a complete wipeout of equity in these firms. the 7.5 and 10 strikes puts for the next few months are loaded with open interest. A small buy at the low of 6.75 and a covered call sale of the 10 dollar strike was managed today at 3 for a cost basis in the stock of 3.75 This was the only way that seemed worth a long position in the stock and locking in a profit. The only way i loose on this trade is if the stock breaches my buy price of 3.75 which i do not believe is likely. I do not see huge upside in the stock at any rate, so why not collar the profit?

It seems to me that the goverment is going to have to release another huge statement/package for these entities and the last thing headline the goverment needs is complete equity destruction, granted we're down to about 20 billion in combined market cap, we've already seen 100 billion destroyed on the long side with these two names alone. Credit spreads are starting to widen in short term goverment paper and something tells me a bailout is going to hurt the dollar and the US Goverments ability to borrow in the open markets down the road. That is a chilling proposition considering the DOLLAR IS BACKED BY DEBT!

Leh seems to have a different version of the same story, without the benefit of some kind of bailout. I think next week we should see a bounce beginning in the market from a goverment catalyst and its hard to say what names in the financial sector are worth buying. One thing is for certain, JP Morgan, Goldman are two guaranteed survivors. I will be looking to move into the XLF Aug 20 Calls this coming week. I have not been in GS since my trades last year.

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How low can we go?

For several years I have been posting what is now a real threat to the US economic system, "systematic risk". Please do a search on this site to find the posting.

Now the question becomes, where are we and when will this be over? A few things to keep in mind

1) The US lead the world in falling equity markets and rising debt spreads.

2) The US Dollar will continue to weaken against most other currencies.

Those trends have to break the downside. Our markets will probably stabilize as other parts of the world begin to deal with issues of systematic risk. Its all about capital and cash flow, in that order - and if you business doesn't have a strong #1 and a decent #2, you will either downsize big, get taken out or risk going bankrupt.

What do historical events suggest about our current fall?

The S&P 500 has had
eight previous bear markets since 1962, according to data compiled by Birinyi
Associates, a stock research firm based in Westport, Connecticut. Stocks have
fallen an average of 33 percent over 382 days during those retreats. The S&P
500's retreat from its peak has lasted 274 calendar days so far. The Dow has had
11 previous bear markets since 1962, averaging a decline of 29 percent over 322

So we can expect another statistical 48 days average of a bear market before a turn. That could coincide with the shorterm Dow 10,800 target we have for this cycle to clear us for a base. But is this time different? The answer, we believe is YES. Becouse this is not 1962, or anything since. The major difference is the derivative destruction that is occuring behind the scenes, causing multiple securities and debt markets to undwind in ways not calculated by sophisticated modeling software.

Where do we see the rest of the future? 2009 will be a very bad year for consumers and companies with negative cash flow and no reserves. The thin will die, and the thinning will be ready to die a corporate death. Now lets compare where equities could go.. based on a list of worst bear markets (which is what i believe we shold be comparing this current trend to)

Its very difficult to read but this list is a bit easier to understand. Image above is borrowed by Political Calculations.

Fall in the Dow: 46%
Losses recovered by: July 1905

Fall in the Dow: 49%
Losses recovered by: September 1916

Fall in the Dow: 40%
Losses recovered by: November 1919

Fall in the Dow: 47%
Losses recovered by: November 1924

Fall in the Dow: 89%
Losses recovered by: November 1954

Fall in the Dow: 49%
Losses recovered by: December 1945

**Disillusionment among the business community was by then so strong, however, that the New Deal was abandoned soon after. (words to the Obama Supporters)

Fall in the Dow: 45%
Losses recovered by: December 1982

What does this mean? It can take an average of 6 years to recover to the previous highs. We're close to completing year number one. But in this cycle, i would give it three years from the bottom to get back to the old highs.

The average drop was over 35%, which means we could enter the Dow 9K range in 2009.

Midday Equity close of short position

May 20th 2008, we initiated a short on the overall market, SPX/OEX and select positions. Today we have closed those positions at 2K dow points lower! We are still holding on to WMT and Wells Fargo Shorts, among a few others and riding this bounce with select financials. The market has completed most of its head and shoulders top, although we needed another 3% or so drop to complete the right shoulder perfectly. WE still advise selling into strength any positions as we get ready for another drop later in the year which may mark the final corrective move in this cycle before the market goes sideways for another 6 months. Trend is down, rally is a trade long.
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How you avoid Hiring Americans

Watch this video and tell me what you think?

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