Tim Geithner was approved by the Senate Finance Committee (guess we all can cheat on our taxes without worry now!) earlier today, as the process of confirmation as Treasury Secretary now passes to the full Senate. The AP wire lit up with the story at 12:37 pm EST, just about the same time the Dow crossed back above 8000 and started a mini-rally (by 2:15 pm, the Dow snuck past 8200).
Coincidence? I think not. Wall Street's fate is now tied to Geithner and how he and Ben Bernanke, over at the Fed, interact and respond to the ongoing obliteration of the nation's largest financial firms.
The euphoria over having one of their own (Geithner's resume is full of Wall Street, World Bank and NY Fed connections) with his hands nearly on the US Treasury quickly faded as those in the know remembered that the US government is carrying a debt load of close to $11 Trillion, so maybe Geithner won't be able to help in the long run. Shortly after 3:00 pm, the Dow was down 150 points again, and matters didn't improve much heading into the closing bell.
Dow 8,122.80, -105.30 (1.28%)
NASDAQ 1,465.49, -41.58 (2.76%)
S&P 500 827.50, -12.74 (1.52%)
NYSE Composite 5,171.74, -102.25 (1.94%)
On top of this is a growing concern over how stable the Federal Reserve is. Bearing in mind that the Fed is a private bank, albeit with deep tethers to the government, the Fed has been buying up more than its fair share of rotten assets and throwing around money like Bernie Madoff on an investor hunt.
With more and more economists and commentators openly saying that the large banking institutions are insolvent (something I and others have known and written about since 2007), reality is taking a heavy toll on investor sentiment. (I'll have much more about the Fed, the banks, the bailouts and our future in a blockbuster report tomorrow)
While the marketeers were making the most of their man being appointed to Treasury, an earnings miss and announced layoffs by Microsoft and more dismal data from the housing and employment sectors overhung the entire session, acting as the metaphorical ton of bricks weighing down all sectors.
New unemployment claims hit a level not reached since 1982, with 589,000 new applications for the week ended January 16.
New home construction and permits fell to record low levels in December, the Commerce Dept. reported.
Taken together, the news could not have been much worse, though investors are getting used to the endless stream of bad news coming out of government and private analyses. The poor earnings reports for the 4th quarter are a relatively recent add to the mix, but earnings season is getting into full swing. Google reports after the bell today. (Update: Google beat analyst expectations ($4.98), posting Non-GAAP EPS for the fourth quarter of 2008 of $5.10.)
Declining issues outweighed advancers by a wide margin, 4867-1560. New lows: 230. New highs: 12. Volume was consistent with the past few days, generally on the high side.
NYSE Volume 1,554,123,000
NASDAQ Volume 2,347,116,000
Oil finished with a 12 cent gain, closing at $43.67, though US inventories were reported 14% above last year's levels. Oil traded lower for much of the session before recovering into the close. Natural gas fell 9 cents, to $4.65. Gold gained $8.70, to $858.80; silver finished the day 4 cents to the good, at $11.37 the ounce.
A catalyst to propel the bulls has yet to emerge, though at this juncture, small bits, like Google's good report, may be enough to keep what little is left of investor confidence. Today's close on the Dow, however, was the second this week below 8149, the interim low (Dec. 1) following the November 20 collapse and bottom (7552).
The markets have traded sideways for two months running, so a betting man might be inclined to look for a change in dynamics. I make the prospects of closing below the Nov. 20 lows within a month at 70%, and a gain to 8750 in the same time frame almost nil.
Thursday, January 22, 2009
Hedge Fund Oxymoron?
In a report released on Wednesday, tracking firm Hedge Fund Research said investors pulled $155 billion from the secretive portfolios.
What separates hedge funds from other, better regulated funds and investment vehicles is that hedge funds are chartered to engage in short selling, buying and selling options and other devices designed to "minimize risk." The whole idea behind the concept of hedge funds is that they can weather any kind of market and make money in any environment.
So why did they take - on average - a 19% beat-down in 2008? It seems that the hedges were trimmed when they should have been sprouting new branches. While mutual funds lost an average of 38% last year, the hedge funds should have been in a position to identify the enormous risks in the market and "hedge" accordingly.
But maybe the term is oxymoronic. Maybe the average hedge fund manager isn't any smarter than the guy with glasses who handles your pension plan, and maybe, despite the tools available to them, the hedge fund managers were not any more aware of what the banks were going through in 2007 and 2008, and failed in their charge to ameliorate risk by shorting, buying puts or exiting losing positions in timely manners.
When this ugly chapter of economics is finally unwound by financial historians, it's likely to be revealed that the clandestine hedge fund community was one of the major contributors to the extreme volatility in markets during the final three months of 2008, fleeing financials just like the rest of the duped investors who thought the subprime crisis was "contained" - a la Ben Bernanke - as markets and profits disappeared like the vapid promises of "higher returns."
Greed, an emotion which knows no bounds, is what attracted the rich and not-so-famous to hedge funds in the first place, and it is the same greed (masked as fear of losing their cash hoard) that is fueling the exodus today. Had the hedge funds really been on the ball, they would have profited from the relative ignorance of the rest of the market. Unfortunately, hedge fund managers turned out to be not the "smartest guys in the room," but merely a little smarter than the average broker.
Investing is largely about managing risk, and while the hedgies purported to managed risk better than the average, their losses - and subsequent redemptions - proved their fallibility and the underlying investment risk dictum, "nobody is immune."
What separates hedge funds from other, better regulated funds and investment vehicles is that hedge funds are chartered to engage in short selling, buying and selling options and other devices designed to "minimize risk." The whole idea behind the concept of hedge funds is that they can weather any kind of market and make money in any environment.
So why did they take - on average - a 19% beat-down in 2008? It seems that the hedges were trimmed when they should have been sprouting new branches. While mutual funds lost an average of 38% last year, the hedge funds should have been in a position to identify the enormous risks in the market and "hedge" accordingly.
But maybe the term is oxymoronic. Maybe the average hedge fund manager isn't any smarter than the guy with glasses who handles your pension plan, and maybe, despite the tools available to them, the hedge fund managers were not any more aware of what the banks were going through in 2007 and 2008, and failed in their charge to ameliorate risk by shorting, buying puts or exiting losing positions in timely manners.
When this ugly chapter of economics is finally unwound by financial historians, it's likely to be revealed that the clandestine hedge fund community was one of the major contributors to the extreme volatility in markets during the final three months of 2008, fleeing financials just like the rest of the duped investors who thought the subprime crisis was "contained" - a la Ben Bernanke - as markets and profits disappeared like the vapid promises of "higher returns."
Greed, an emotion which knows no bounds, is what attracted the rich and not-so-famous to hedge funds in the first place, and it is the same greed (masked as fear of losing their cash hoard) that is fueling the exodus today. Had the hedge funds really been on the ball, they would have profited from the relative ignorance of the rest of the market. Unfortunately, hedge fund managers turned out to be not the "smartest guys in the room," but merely a little smarter than the average broker.
Investing is largely about managing risk, and while the hedgies purported to managed risk better than the average, their losses - and subsequent redemptions - proved their fallibility and the underlying investment risk dictum, "nobody is immune."
Wednesday, January 21, 2009
Obama Bounce? No, It's a Geithner Gallop; eBay Disappoints
Stocks reversed nearly all of yesterday's losses after the New York Times posted an article with the glaring headline. Hearing Over, Geithner’s Confirmation Is Expected minutes before noon.
Stocks started out full of steam, but had surrendered most of their gains before that bastion of journalistic integrity asserted that Timothy Geithner's problems with not paying taxes on time would be sufficiently swept under the rug and he would be confirmed as the new Treasury Secretary. Such an appointment virtually assures more bad behavior on both Wall Street and in Washington, DC. The banks will continue to receive hefty sums of taxpayer dough from the Treasury without recourse nor accountability.
Tra, la, la, life as a bankrupt banker must be good with a capital G.
Dow 8,228.10, +279.01 (3.51%)
NASDAQ 1,507.07, +66.21 (4.60%)
S&P 500 840.24, +35.02 (4.35%)
NYSE Composite 5,273.9902, +215.93 (4.27%)
The advance was broad-based with gainers beating losers, 5011-1567. New lows retained their 14+ month edge over new highs, 278-10, notable in the minuscule number of new highs on such a large point gain. Volume was solid, a very optimistic indicator.
NYSE Volume 1,737,111,000
NASDAQ Volume 2,109,177,000
IBM's strong 4th quarter results also contributed to the sanguine tenor of the day. The computing giant returned impressive results after the close on Tuesday.
Commodities also got in on the rising price action, though oil's gain of $2.71 resulted in a closing price of $43.55, quite tame by recent standards. Gold continued to trade under pressure, losing $5.10, to $850.10. Silver gained 15 cents, to $11.33. Natural gas was also higher, gaining 12 cents, to $4.75 mmbtu.
After the close, eBay released 4th quarter and full year results. The company's 4th quarter returned lower revenue and earnings, and the stock sold off after-hours. Here [PDF] is a link to a graphical presentation.
Ebay-related revenue took a large hit. The largest revenue production came from PayPal, as the company struggles through a troubling transition in their core auction and fixed-price business. Essentially, the company has largely neglected the individual seller in favor of catering to larger enterprises. This has caused nothing short of a seller exodus over the past few months. Ebay executives put most of the blame on poor global economic conditions rather than taking the heat for their failed turnaround of a business that didn't need changing.
At this writing, ebay was trading at 12.52, down 0.76 in after-hours trading.
Stocks started out full of steam, but had surrendered most of their gains before that bastion of journalistic integrity asserted that Timothy Geithner's problems with not paying taxes on time would be sufficiently swept under the rug and he would be confirmed as the new Treasury Secretary. Such an appointment virtually assures more bad behavior on both Wall Street and in Washington, DC. The banks will continue to receive hefty sums of taxpayer dough from the Treasury without recourse nor accountability.
Tra, la, la, life as a bankrupt banker must be good with a capital G.
Dow 8,228.10, +279.01 (3.51%)
NASDAQ 1,507.07, +66.21 (4.60%)
S&P 500 840.24, +35.02 (4.35%)
NYSE Composite 5,273.9902, +215.93 (4.27%)
The advance was broad-based with gainers beating losers, 5011-1567. New lows retained their 14+ month edge over new highs, 278-10, notable in the minuscule number of new highs on such a large point gain. Volume was solid, a very optimistic indicator.
NYSE Volume 1,737,111,000
NASDAQ Volume 2,109,177,000
IBM's strong 4th quarter results also contributed to the sanguine tenor of the day. The computing giant returned impressive results after the close on Tuesday.
Commodities also got in on the rising price action, though oil's gain of $2.71 resulted in a closing price of $43.55, quite tame by recent standards. Gold continued to trade under pressure, losing $5.10, to $850.10. Silver gained 15 cents, to $11.33. Natural gas was also higher, gaining 12 cents, to $4.75 mmbtu.
After the close, eBay released 4th quarter and full year results. The company's 4th quarter returned lower revenue and earnings, and the stock sold off after-hours. Here [PDF] is a link to a graphical presentation.
Ebay-related revenue took a large hit. The largest revenue production came from PayPal, as the company struggles through a troubling transition in their core auction and fixed-price business. Essentially, the company has largely neglected the individual seller in favor of catering to larger enterprises. This has caused nothing short of a seller exodus over the past few months. Ebay executives put most of the blame on poor global economic conditions rather than taking the heat for their failed turnaround of a business that didn't need changing.
At this writing, ebay was trading at 12.52, down 0.76 in after-hours trading.
Tuesday, January 20, 2009
Roubini: "systemic banking crisis"; Obama: "the time has come"
As Washington, DC became a grand celebration with the inauguration of Barack Obama, the 44th President of the United States of America, a far different mood was spilling out of the stock exchanges and broker/dealer offices of Wall Street.
The juxtaposition of moods and emotions could not be more stark between the Capitol and the Big Apple. While Obama was reminding us of the nation's greatness, Wall Street was dealing with the current reality of a systemic banking failure. Speaking in Dubai, New York University Professor Nouriel Roubini, who has been one of the leading voices predicting the global financial crisis, said that US banks are "effectively insolvent," adding that total financial losses could reach the staggering sum of $3.6 Trillion.
There is no doubt that the economy will be the stiffest challenge presented to the newly-minted President. Obama, in close contact with the congress, is already working on a financial rescue package which will total over $800 billion in tax breaks and incentives over the next two years. Whether the medicine spooned out by Washington will cure the sick patients of Wall Street is still suspect. The wheels, however, will turn, for better or for worse, and business will continue, in whatever form it takes.
As President Obama made his way to the Capitol to take his oath of office, markets around the world were reeling. The Dow Jones Industrials quickly sank below 8100, the fourth consecutive session in which it has declined beyond that mark. The catalysts for the decline were the same as they have been throughout: the banks and financial institutions that continue to write down massive, unpayable debt, begging for help from stunned legislators while destroying investor confidence and trust in markets.
So it was that the new president was greeted with a massive loss on US equity markets, which ended the session with the worst losses of the new year.
Dow 7,949.09, -332.13 (4.01%)
NASDAQ 1,440.86, -88.47 (5.78%)
S&P 500 805.22. -44.90 (5.28%)
NYSE Composite 5,058.0601, -329.44 (6.11%)
Advancing issues were overwhelmed by decliners, 5655-833, one of the most lopsided showings in months, even though the past few months have been nothing but an endless string of declines in the broad markets. New lows arched ahead of new highs, as expected, 328-18, expanding both the number of new lows and the margin of lows to highs. Volume was once more light, considering the loose selling all around, but, as mentioned in earlier posts, smaller volume figures are more or less going to be a fixture for some time to come. Small investors have been spooked, hedge funds are largely out, and big brokerages (are there any left?) have trimmed their positions significantly.
NYSE Volume 1,718,511,000
NASDAQ Volume 2,014,633,000
On the commodities side, oil, which began a new futures contract today (March), gained from the closing February contract, up $2.23, to $38.74. Gold rebounded sharply, adding $15.30, to $855.20, while silver slipped on profit-taking, down 4 cents, at $11.18.
Up this week are tech heavyweights - Apple, eBay, Google, AMD, and others - reporting 4Q earnings. Of particular focus is eBay, which seems to have lost a lot of momentum lately, due to CEO John Donahoe's commitment to "disruptive thinking," the idea that eBay must change to grow, or, in his own words, "create a vision of the future so people could let go of a very successful past." Apparently, Mr. Donahoe never heard of IIABDFI (If it Ain't Broke, Don't Fix It) before embarking on changes (like tripling fees in some categories) that have resulted in vociferous complaints and a mass exodus of mid-to-small sellers.
The movement of sellers has been so abrupt that one site, Bonanzle, has gone from zero to just under 1 million listings in about six months time. Other niche and general sites have experienced enormous growth during Donahoe's tenure. Ebay reports after the close on Wednesday. Look for the first of many disappointing quarters. The stock should sink to under $10/per share (currently hovering around $13-14) in short order (no pun, nor hint, intended).
If today's action was any indication, President Obama's task is not going to be an easy nor a pleasing one. Rescuing an economy that has been buffeted by years of abuse and neglect will take time to repair. This is not a condition which will be cured overnight. And, as the President has been reminding us, it's likely to get worse before it gets better. How much worse only time will tell.
The juxtaposition of moods and emotions could not be more stark between the Capitol and the Big Apple. While Obama was reminding us of the nation's greatness, Wall Street was dealing with the current reality of a systemic banking failure. Speaking in Dubai, New York University Professor Nouriel Roubini, who has been one of the leading voices predicting the global financial crisis, said that US banks are "effectively insolvent," adding that total financial losses could reach the staggering sum of $3.6 Trillion.
There is no doubt that the economy will be the stiffest challenge presented to the newly-minted President. Obama, in close contact with the congress, is already working on a financial rescue package which will total over $800 billion in tax breaks and incentives over the next two years. Whether the medicine spooned out by Washington will cure the sick patients of Wall Street is still suspect. The wheels, however, will turn, for better or for worse, and business will continue, in whatever form it takes.
As President Obama made his way to the Capitol to take his oath of office, markets around the world were reeling. The Dow Jones Industrials quickly sank below 8100, the fourth consecutive session in which it has declined beyond that mark. The catalysts for the decline were the same as they have been throughout: the banks and financial institutions that continue to write down massive, unpayable debt, begging for help from stunned legislators while destroying investor confidence and trust in markets.
So it was that the new president was greeted with a massive loss on US equity markets, which ended the session with the worst losses of the new year.
Dow 7,949.09, -332.13 (4.01%)
NASDAQ 1,440.86, -88.47 (5.78%)
S&P 500 805.22. -44.90 (5.28%)
NYSE Composite 5,058.0601, -329.44 (6.11%)
Advancing issues were overwhelmed by decliners, 5655-833, one of the most lopsided showings in months, even though the past few months have been nothing but an endless string of declines in the broad markets. New lows arched ahead of new highs, as expected, 328-18, expanding both the number of new lows and the margin of lows to highs. Volume was once more light, considering the loose selling all around, but, as mentioned in earlier posts, smaller volume figures are more or less going to be a fixture for some time to come. Small investors have been spooked, hedge funds are largely out, and big brokerages (are there any left?) have trimmed their positions significantly.
NYSE Volume 1,718,511,000
NASDAQ Volume 2,014,633,000
On the commodities side, oil, which began a new futures contract today (March), gained from the closing February contract, up $2.23, to $38.74. Gold rebounded sharply, adding $15.30, to $855.20, while silver slipped on profit-taking, down 4 cents, at $11.18.
Up this week are tech heavyweights - Apple, eBay, Google, AMD, and others - reporting 4Q earnings. Of particular focus is eBay, which seems to have lost a lot of momentum lately, due to CEO John Donahoe's commitment to "disruptive thinking," the idea that eBay must change to grow, or, in his own words, "create a vision of the future so people could let go of a very successful past." Apparently, Mr. Donahoe never heard of IIABDFI (If it Ain't Broke, Don't Fix It) before embarking on changes (like tripling fees in some categories) that have resulted in vociferous complaints and a mass exodus of mid-to-small sellers.
The movement of sellers has been so abrupt that one site, Bonanzle, has gone from zero to just under 1 million listings in about six months time. Other niche and general sites have experienced enormous growth during Donahoe's tenure. Ebay reports after the close on Wednesday. Look for the first of many disappointing quarters. The stock should sink to under $10/per share (currently hovering around $13-14) in short order (no pun, nor hint, intended).
If today's action was any indication, President Obama's task is not going to be an easy nor a pleasing one. Rescuing an economy that has been buffeted by years of abuse and neglect will take time to repair. This is not a condition which will be cured overnight. And, as the President has been reminding us, it's likely to get worse before it gets better. How much worse only time will tell.
Oil, Natural Gas Prices Slide
With US equity markets closed in observation of Martin Luther King Jr. Day, there was little to report except on select commodity markets.
In futures trading, oil for February delivery fell $2.84, to $33.67. The February contract closes on Tuesday, Jan. 20, and trading was thin as compared to the March contract.
Also feeling the impact of decreasing demand was natural gas, which is used to heat nearly 1/3 of all US households. The March contract fell 26 cents, to a seasonal low of $4.56.
Both prices reflect supply surpluses in US stocks and slack demand as the economy reels from deflationary pressures, job losses and the nation's worst recession since the 1930s.
Our regular report will be posted shortly after market close, later today, as Americans and the world will be focused on the historic inauguration of President Barack Obama.
In futures trading, oil for February delivery fell $2.84, to $33.67. The February contract closes on Tuesday, Jan. 20, and trading was thin as compared to the March contract.
Also feeling the impact of decreasing demand was natural gas, which is used to heat nearly 1/3 of all US households. The March contract fell 26 cents, to a seasonal low of $4.56.
Both prices reflect supply surpluses in US stocks and slack demand as the economy reels from deflationary pressures, job losses and the nation's worst recession since the 1930s.
Our regular report will be posted shortly after market close, later today, as Americans and the world will be focused on the historic inauguration of President Barack Obama.
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