`Don't Be Cruel' Stocks Show Short Covering Deceives (Update1): “Gains in financial, property and consumer companies suggest the advance of the past three weeks is being fueled in part by short sellers locking in profits by purchasing shares to return to lenders, a false buy signal during temporary rallies in November and January. Stocks may repeat that pattern and fall to the lowest levels of the year amid forecasts for four straight quarters of declining profits and worsening bank credit losses.”
That’s exactly what I’ve been saying. Rallies are nothing but BOUNCES. Strength is to be SOLD.
The Bear trend is firmly in place. See:
“Short interest climbed to 4.2 percent of the total shares listed on the New York Stock Exchange as of March 14, the highest since at least 1931, according to Harrison, New York-based research firm Bespoke Investment Group LLC.
The 100 most-shorted stocks outstripped the S&P 500's 6.3 percent rise from March 10 to its high last week by 3.8 percentage points.”
That simply means that the MOST shorted names also had the GREATEST rises. It does NOT mean that the FUNDAMENTALS have changed for these firms or that they WON’T fall to new lows.
“Fannie Mae, the biggest provider of money for U.S. home loans, has climbed 31 percent since March 10. Short interest in the Washington-based company rose to 77.9 million shares as of March 14, Bloomberg data show. That's the highest since at least September 1991. Fannie Mae surged 28 percent during the advance that began in November and climbed 10 percent during the January rally. The gains evaporated each time.”
They will evaporate again… and again. For a SEVERAL YEARS as the RECESSION runs its course.
The high short interest is NOT a contrarian buy signal. The financial system is in a REAL SERIOUS CRISIS. The smart money knows this because it is responsible for it.
“I don't see any sustained long-term buy interest. Some of the rallies we may have seen short-term were short- covering and some dead-cat bounces on stocks that had really gotten taken apart.” -Uri Landesman, ING International Growth Opportunities Fund.
“These rallies in here are short covering.They're not being driven by the fundamentals.” -Peter Sorrentino, a senior portfolio manager at Huntington Asset Management.
Trichet, King May Support Fed as Ammunition Runs Low (Update1): “Federal Reserve Chairman Ben S. Bernanke has so far shouldered most of the burden of saving the global economy and financial markets. He may be about to get more help.
With the credit crisis entering its ninth month, Bank of England Governor Mervyn King and European Central Bank President Jean-Claude Trichet are on the verge of new steps to spur lending and increase liquidity, say economists at Lloyds TSB Group Plc and Royal Bank of Scotland Group Plc. Interest-rate cuts may be next if the crisis persists.”
Oh dear god! THE GREAT GLOBAL MONETARY EASING is yet to come? I thought we just came off ‘the great global monetary easing’ and that THAT is exactly what got us into this mess in the first place! Correct me if I’m wrong, but wasn’t it absurdly low REAL rates that literally forced the entire financial system to REACH FOR YIELD? That is to say to leverage up using derivatives in a vain attempt to turn something yielding 2% or 6% into something closer to 9%? Wasn’t it the super cheap and EASY access to credit by both individuals and corporations that lead to runaway SPECULATION in hard assets such as REAL ESTATE?
Instead of allowing for an orderly and DESERVED unwinding, de-leveraging and general deflation of this mania, the major Central Banks of the world propose to co-ordinate a new round of monetary EASING? Brilliant. Just brilliant.
“The Fed chairman needs all the help he can get. In addition to lowering interest rates at the fastest pace in two decades, Bernanke has committed as much as 60 percent of the $700 billion in Treasury securities on his balance sheet to expand lending. The Fed has also offered a $29 billion loan against illiquid securities to assist the buyout of failing securities firm.”
The Fed has almost run out of ammo. Much like George Soros on Black Wednesday, when he ‘broke the Bank of England’, global capitalists are damn near close to breaking the Fed. 60% has been committed and it doesn’t seem to be working. Another push and things could unravle quickly...
“By following the Fed's moves to take illiquid securities as collateral and ease credit terms, King and Trichet would confront the same concern Bernanke, 54, already faces: that they're exposing their balance sheets, and ultimately taxpayers, to potential losses on private-sector securities.”
It is truly humorous that the Socialists across the pond are the one’s considering taking the ‘laissez faire’ approach while the CHAMPIONS of Capitalism over here are pounding the table for mass intervention.
“U.K. banks are sitting on cash and refusing to pass on the central bank's rate cuts to customers, pushing mortgage rates to the highest level in more than seven years and further weighing down a housing market that's already the worst in 18 years.”
That’s perfectly rational behavior. The banks can’t trust each other because they can’t trust each others balance sheets. Nobody knows where the dead bodies are because nobody has marked to market FULLY. Mark to model is still the STANDARD and the Fed is making it worse:
SEC Openly Invites Corporations To Lie: “Under SFAS 157, it is appropriate for you to consider actual market prices, or observable inputs, even when the market is less liquid than historical market volumes, unless those prices are the result of a forced liquidation or distress sale. Only when actual market prices, or relevant observable inputs, are not available is it appropriate for you to use unobservable inputs which reflect your assumptions of what market participants would use in pricing the asset or liability.”
Translation: IF MARKET PRICES ARE TOO LOW, IGNORE THEM.
That is NOT going to make the banks stop hoarding cash. We ALL need to know who is bust and who is not.
“We're inching closer to the great global monetary easing.” -Joachim Fels, co-chief economist at Morgan Stanley in London.
“Putting illiquid mortgage-backed securities onto the central bank's balance sheet will transfer a lot of the risk associated with these instruments.” -Christine Li, an economist at Moody's Economy.com.
Citigroup Separates Credit-Card Business in Banking Overhaul: “Citigroup Inc., battling to restore profit after a record loss, will set up an independent credit- card unit and overhaul consumer banking along geographical lines.”
These are the first signs of the pending dismantling of Citigroup. First, Citigroup will re-organize internally by creating new fiefdoms within the org chart. Second, these units will them be spun off and sold outright to other industry players or IPO’d as separate branded entities. Citigroup, the financial giant is no more.
Citigroup (C) has wiped out 10 years of gains in a couple of months and is now at support from mid 2002. Failure here, which seems more and more likely, will result in a test of the 1998 'Asian Cris' low around $11.00.
You don't need to have a vivid imagination to picture what the carnage in the broader equity markets would look like should that occur.
UBS Falls on Concern Bank May Have to Raise Capital (Update2): “UBS AG, Switzerland's largest bank, dropped as much as 4.8 percent in Swiss trading on concern it may have to raise capital because of more subprime-related losses.
The bank should raise 15 billion francs to cushion potential writedowns of as much as $21 billion this year, Merrill Lynch & Co. analysts including Derek De Vries said in a note to investors today. UBS may announce $11 billion of first-quarter markdowns as early as this week, the analysts said.
UBS (UBS) currently has enough funds to withstand $16 billion of writedowns, said the analysts, who predict the bank will eliminate its dividend for 2008. "
UBS has undone over 4 years of gains in a couple of months, dropping into 'the box'. UBS is now stuck below formidable resistance around the $28 and $25 area. Supp can be found around the $20 and $18 area. Best case scenario: Expect UBS to trade within that range for some YEARS as common shareholders are DILUTED into OBLIVION.
Bernanke May Run Low on ‘Ammunition’ for Loans, Rates (Update 1)
Citigroup Raises 47.5 Billion
Banks Agree on Super SIV