Friday, April 3, 2009

REIT'S Rally???

I have been scratching my head wondering how in the world REIT's rose so much today. Then I found this link.

I am sorry, but by diluting shares, that causes a stock to go up over 25%???? Who is kidding who. Kimco was on its way to bankruptcy when it pulled this rabbit out of the hat. Kimco sold off over 90M shares meaning it basically printed up 90M more common shares on top of its current 271M common shares. Thats right. It went from 271M common shares to over 360M shares in one day. AND THE STOCK PRICE SKYROCKETTED???? SAY WHAT???? A 33% DILUTION OF SHARES???

Go figure. Other REIT's such as SPG have also done this recently. The idea is to raise capital from the private investor in order to pay of massive amounts of debt in order to boost private share equity while diluting common shares. Yet, for some reason KIM goes up 25%.

Another fact. KIM's debt is $4.5B. That's B for billion. The net proceeds from todays 33% dilution of their common shares raised about $717M to pay off debt. That means they still have a debt of $3.8b after the 33% dilution of common stock equity.

Now, you tell me, WTF????

This is why SRS took a dive today. It makes no sense at all how a stock goes up 25% after a 33% dilution of their shares. This is pure and utter manipulation. All the execs are doing is raising cash so they can cash out before the company goes bankrupt.

Now PAY ATTENTION! Keep in mind these shares were offered at $7.10 a share. 90M shares at $7.10. And then the stock shot up to $9.40. That means these investment firms somehow got their hands on these shares at $7.10 and turned around and sold them for over $9 a share to some suckers out there.

This my friends is a true ponzi scheme. Make no mistake. Print up more shares to make cash which does not come close to handling the overwhelming debt. Watch for these REIT's to be on an episode of American Greed coming to a television screen near you.

I am now quite confident in my SRS shares once again.

VIX Update - Just before Friday Close

Interesting situation taking place. VIX will close near 41 and again tested that 40 trend line. But PCR data is heavy on the Call Side. This will get us back into the scenario of a dual low trend line reversal as it has done every time this scenario has taken place in 2009. But lets see what the close brings to make sure the PCR data stays on the heavy call side.


I don't like to make table pounding, bold recommendations, but I would be very surprised to see SRS under $50 anytime again in the next 3-6 months. Could be the steal of the century. But what do I know? I said SRS was a bargain under $80.

I am not normally a double up and average cost down. But this time, its a no-brainer.

VIX opened flat. That gives no signal on where we are going today. Likely to be flat all day but leaning to the down side.

Job Data

Another horrible number for job losses. A big revision for January to the down side. Unemployment up to 8.5%. Yet, the FREAKING IDIOTS ON CNBC SAYS ITS GOOD NEWS!!!!!!!!!!!

You are being manipulated people. Job losses are not slowing, they are going to go right through the 10% mark within a few months. Yet the media will keep telling you it is OK. Pay Attention!

Thursday, April 2, 2009

Did Someone Say, "Depression"?

"WE ARE OUT OF THE DEPRESSION!!!!" That is what I heard this morning by our favorite contrarian indicator himself. He now claims we have been in a depression and now we are out of it. In December, he said we hit our lows in November and no only is this not a depression, this really isn't even a recession. Now that we have a big bear market rally, he is claiming it really was a depression but it is all behind us.

Is that so? The 5.7 million U.S. workers who are claiming unemployment benefits would beg to differ. As is the over 1.5 million estimated other workers who no longer qualify for unemployment benefits due to them being out of work for longer than 6 months. Yes, unemployment is a lagging indicator for when the economy improves, but unemployment has to slow down to have any hope of an economic recovery. The idiot on CNBC says unemployment is meaningless. Ignore the numbers. Don't worry about them. Well, maybe when the market turns back down and tests the lows again and his show is thrown off of the air, maybe he will see what it is like to stand in an unemployment line and have a little more respect for those who are struggling in his "new bull market".

One more beef on our friend at CNBC. When the market was under 700, he was telling people to stay out of the market. Avoid banks. Now that it is above 800, he says get in the game, buy banks. What happens when the market goes back under 700? Anyone want to guess? By then, he will be off the air and likely sued by many investors who jumped back in with their 401K and lost another 30%.

Today was a nice follow throw on the M2M news. Another bullet fired by the gov't to prop up the financials. Banks now have the opportunity to value truly worthless assets as being worth something. While this may seem like great news, it really is not all that great for banks. It will only apply to a very small percentage of their assets and may improve earnings by 4% at best. Asset values continue to go down and will continue to go down. Banks will show operational profits but their balance sheet will continue to show massive losses.

The media wants to claim the G20 news about $1T being earmarked for global recovery was great news. Uh, $1T???? that doesn't cover how much AIG will need for its complete bailout when that deal is said and done. $1T is nothing. It is non news.

I know this feels like a bull market but rest assured, we are in a bear market. Bear markets do not come to an abrupt end and turn right into a bull market. Consolidation happens and the bottom has to be tested and solidified. This has not happened yet. It will. M2M changes only put off that inevitability.

Did anyone notice the VIX this week? Of course you did! The VIX goes down when the market goes up, right? Well since March 12th, the market is up 10% and of course, the VIX must be down, right? Wrong! The VIX is up during that period. Is fear leaving? Is uncertainty leaving? NO!

Earnings season is upon us. Many companies are going to surprise on the upside due to estimates being lowered. GOOG will do this. Cisco, HP, Dell are likely to do the same. All tech. But by in large, numbers will be bad. The key here is, the market is now priced a bit ahead of itself, expecting better numbers since the media is pounding the table that housing is up, GDP slide is slowing, banks are profitable. Lets see about that.

OK, enough of the rant. I am in rhythm with this market. Last night I was not sure where the market would go since news was going to drive it. I gave a couple of scenarios and one of them played out. The market rose on the news but on low volume and fizzled. The only thing missing in the market were the bears. If the bears show up, the market will slide.

The VIX is ready to bounce. The S&P is at resistance. TA clearly shows that we should have a downward correction. And we will. Starting tomorrow, I think.

The key signal to watch for is simple. Watch the VIX at the open. If it opens above 42.04 we will have a down day in the market and will likely have a steady slide down. Probably back to the 810 range.

If the VIX opens lower than 42.04, then we will likely finish on an up day. It means that you should buy on any dips in the market. It's that simple. The VIX historically will open lower on Fridays and when that happens, a high percentage of the time it will close lower. But if it opens higher on Fridays, it has a high probability of closing higher. Strange phenomenon.

If the VIX opens and closes higher, and the S&P closes in the 810 range, I look for early next week we test the 763 area. The market needs to let some air out and fill a gap. What will be interesting then is what happens after. Earning will begin to trickle in and may drive the market. We also have to watch what the banks are saying about PPIP and M2M changes. Today, BAC said M2M changes has very little effect on their bottom line.

Remember where our economy is. Don't get caught into the hype.

Feel Lucky Punk?

Has the gov't shot all of their bullets now? Is the chamber empty? Do you feel lucky?

The only bullet left is the uptick rule. We are months from that. And not much of a bullet. The only reason they will need to use that if the market slides from here.

The M2M ruling is significant for the short term. It gives investors the idea that toxic assets are gone or are a lot less toxic. It may be true for some, but not all. It also gives banks the ability to model their own price for assets which have no market. This is very dangerous and is why FASB 157 was created in the first place.

Regardless I think we should see a tail off of the market the rest of the day. Not a fast tail off, but a slow pull back. There is no more news for the bulls to look forward to. If it does not tail off and rises, it is a pure momentum play which is understandable. No sense sticking your neck out on this one. FASB was obviously forced into this against their will. Wall Street wins at the cost of Main Street once again.

Wednesday, April 1, 2009

Too Big To Fail? M2M Easing May Decide

I want to talk about the banks tonight. I have a theory that I want to share. I am sure this theory is not unique but I will claim it is mine only because I have not heard it or seen it but I have not had a lot of time to read WSJ, Reuters or Bloomberg lately. But, if you want to skip to my thoughts on the market today and the rest of the week, jump to the "BACK TO THE MARKET" section lower.

Tomorrow may be a pivotal day for the market. When I say market, I am focused on financials. Financials will either lead the market significantly up, or significantly down. If financials lead the market significantly down, we are probably in a situation that many of the major banks are nationalized to some degree. Insolvent. Not all of them, but many of them. If this happens, then another sector, perhaps energy or tech will lead the market slowly back up over the next few years. Financials will never be what they once were. They will not be a leader. Here's why.

Lets say tomorrow M2M accounting rules are relaxed such that some assets can be valued at prices other than mark due to whatever circumstances the gov't or banks want to make up. Does this mean all banks are solvent? Does this mean all banks are out of trouble? Of course not. It may certainly help the banks that played closer to the rules and did not get heavily leveraged. It can allow them to reduce write downs and claim higher capital, thus allowing them to get back into more normal business activities. But it does not cure all. Even the good banks are going to have difficulty determining proper values of assets. It will be hard to really determine how much value any given bank has at any point in time. And if real estate prices continue to drop, it still presents risk that these banks can still fail and have further huge write downs.

For these banks, they are still too big to fail. We can no longer move forward with financial entities that are too big to fail. I see these major banks who pass the stress test and are determined to be solvent, to still have to raise capital in order to free up credit markets. These all-purpose banks will eventually be forced into downsizing by selling off divisions. No more all purposes banks. No more, "Too large to fail". What is interesting about this is, either the gov't can force this early on, or it will happen naturally over the next 2 years. Banks will have to raise capital as residential and commercial real estate prices continue to slide. Regulations around bank capitalization will force it. From this will be created smaller entities that will be separately run, and separately traded on the stock markets.

For many banks, even the major banks, they will not pass the stress tests even with the M2M easing. These banks will be broken up into smaller entities and their bad assets will be forced to be sold off via auction or via free market selling at rock bottom prices. It will create a micro-burst of real estate price drops of probably 30-40% more than they are now. This will hurt initially but it will be the bottom and real estate will quickly regain traction within 1-2 years and head back up. It is the natural progression that needs to happen.

These less fortunate banks will either be wholly nationalized or partially nationalized like Citi and AIG are today. They will be broken up into smaller entities and then re-enter the private market as these smaller entities.

For smaller banks such as regionals, the healthy ones will scoop up some of the insolvent competitors or the smaller local banks which are insolvent. This will result in some of the healthier regional banks to be about the size of some of the trimmed down major banks.

For the small banks, there will be consolidation among themselves or they will be scooped up by the regionals.

What you hear a lot of is consolidation of the major banks. I disagree. I don't see consolidation of major banks. What that creates is banks that are even bigger than too big to fail. I believe the major banks will become smaller. It is the new era of banking. Smaller and more lean so that gov't can regulate them easier and the banks start playing the free market capitalism game where they are no longer too big to fail and gov't can allow banks that are insolvent to fail.

We will never get back to banks the size of Goldman, JP Morgan, Lehman, B of A, etc. Gov't will not allow it for the benefit of the future for the U.S. economy. Our gov't made the mistake of doing the opposite in 2008. Forcing banks to consolidate. Now the banks that are too big to fail are bigger than they were before. Bank reduction will result in a better financial foundation for the world economy.


All right, the market is behaving as planned and almost on cue. The target for today was a VIX at 42 and a market up 2%. This was actually a pretty easy call given the FASB meetings this week and the anticipation of the news. The hard part was ignoring TA and the futures which clearly showed today should have been a down day.

Tomorrow is a different story. While I have been very confident this week, I am not as confident for tomorrow due to news driven events. I feel we are at a crossroads right now. The VIX is near its lower trend line. The S&P is teetering on a support line. Big news is coming out. But this news may be the last bullet the gov't has to turn financials around. Is it the magic bullet? Or is it a blank.

Given what the VIX is telling us, I believe tomorrow the market will gap up and run a bit in the morning. That will bring the VIX to about 41 and at a key resistance. The S&P may get to about 825-830, another key resistance. News should hit about then or even leak a bit pre-market. Ignoring the news, it sets up a key trigger for the market to reverse and reverse hard to the down side. If the FASB was not meeting tomorrow, I believe the market would bounce off of 825 and head straight down to 750. So, lets factor in the news...

If M2M easing is announced and one of two proposals is accepted, The market could very well take off on the back of financials. There is certainly uncertainty on what the new rules will do, but the market will still take off. Perhaps 850-875. But then stall. From there I would expect a gradual move down over the next few weeks to the 750 or lower range as stress test results are announced and the gov't has to nationalize or semi-nationalize some of the banks. We will see sub 700 before end of June.

If M2M easing is not decided upon or voted down, this will be a severe blow to the financials and to the market. With bad news coming in the form of earnings and stress tests and higher unemployment and lower RE prices, we could see a huge market move down. But no lower than 750, and eventually slowly go down to sub 700.

So with either result, we go to sub 700. One takes a longer road to get there.

For me, I see an opposite of today. I think we gap up and run a bit then move down in the red by 10:30 or 11:00. I think at that point, assuming no major news, cash is king. Take any long profits while you can. Play financial straddles and wait for the news. When it hits, jump in quickly to whatever side but be sure what the news is. I am hoping at the time of the news, the VIX will be at 41 and PCR data will show heavy call volume. If that is the case, I will lean heavy to the short side with SRS and FAZ and call options on FAS and/or SPY.

Again, tomorrow is a pivotal day and could be a fulcrum for the near term direction of the market.

Just as Planned. Market and VIX in Harmony.

Not a bad call last night saying VIX to 42 on a market that goes up 2%. I am waiting for PCR numbers. But if everyone is playing their roll correctly, we are set for a likely slide in the market. TA has been saying we should have gone down these last two days to the 750 mark. But that does not match market sentiment. now that we are above 805 again, I think the EW guys may need to do a recount. And I would be very interested in those results.

Tomorrow is setup to be very interesting. At 811, the market really should gap up. If so, I think that is time to pull the trigger and take profits on the long side and enter short positions (if you haven't already done so). But, I do want to wait for PCR data and to see confirmation in the morning.

VIX Setting Up For The Perfect Storm

Wow. I could not have drawn it up better myself. If VIX can get down to that 42 level or even 41 at EOD and if PCR data can continue to move to the call side, we will be setup for a very clear short opportunity. Today longs win, as expected. But after today, lookout. But lets wait for what the close gives us. If market moves down from here today, I don't see the big bang coming.

Tuesday, March 31, 2009

In Sync

I am feeling very much in sync with the market this week. Monday did as expected as did today, although the dive at the end was a bit surprising. Either way, I held all of my positions anticipating more buying going into the "faux" news knows as M2M easing.

The VIX fell just below the 20dma which is not surprising since yesterdays action did not get far enough above the 20dma to call for a continued downtrend in the market. I was anticipating the VIX to fall slightly which is what it did. It really should have gone a lot lower with the market going up significantly during the day. But it held and that is starting to create a bit of stress on the ViX

I like this action. No, I love this action. If I am in tune with the market as I say I am right now, I see potentially a market dip in the morning followed by a significant move up during mid-day. If you are a bear, do not chase the early down movement. It is a trap. Let it go. Bulls will win tomorrow. Let them win. If all goes well, the VIX will close at about 42 on a market which may go up 2%. What this means is the VIX is being set like a spring, waiting to be released and jump much higher. The action yesterday, today and tomorrow have been setting up this spring. Yesterday it showed that the VIX wants to spring but it wasn't loaded enough. Today and tomorrow will show the spring loaded heavy and ready to jump. There is no momentum for the VIX to move higher tomorrow. And it won't (at the EOD) and thus the market is free to move higher. If we can get the VIX to 42 and the PCR at a low number (sub .25), its time to go all in short.

This also matches the upcoming news events. While tomorrow may not be a great day to play shorts, it may be a great day to enter short positions very late in the day in anticipation of the upcoming breakdown in the market.

Earnings season is just around the corner. The market can withstand some bad news but there will be some major misses by some major companies that will drive the market lower. TA experts claim that we may fall down to 743 or so then jump to 900. I don't see it. Market sentiment is positive right now in general but I see that reversing quickly on any significant bad news.

I am still holding my SRS and haven't flinched. Again, I am not day trading it and while I probably should be playing the swings outside of my core position, I am just letting it ride.

I am still riding the call side of my FAS straddle. I sold my put side yesterday at a very nice profit so my call side if it goes any higher will result in a nice net profit. I am also sitting on some calls on some specific banks, namely BAC and STT. They will be sold mid-day tomorrow, but wow, nice day today on those. I will be buying BAC May puts on Thursday ready for the ride down to sub $1.

Here are a couple of shorts you really should be considering. VMW and AAI. VMW will miss. Mark it down. they will hit new 52 week lows. May puts are still cheap.

AAI has some big news coming out in about 2 weeks. Just trust me on this one. April puts are a good play. Too bad AAI is not a $25 stock. It is also too bad because AAI is running a good ship right now. But the news will hit them hard.

Good luck.

Who's Been Reading My Blog?

Is it me or is Waxie copying my thoughts each day. I post mine a few hours before Waxie and I find it fascinating his thoughts are very similar to mine.

Check out his thoughts for tomorrow. Scary similar.

He's a smart guy. :)

Monday, March 30, 2009

Truth Rules!

Finally, reality hit the market via real news about GM and about banks needing more money. Hell no the banks are not profitable. Anybody playing banks thinking they are profitable is not paying attention. The banks will take years and trillions of dollars to get back to even after years of 30-1 leveraging. Don't let these analysts in the media fool you. They are trying to move the market by making their own news.

VIX had a nice run today just above its 20dma. That is very bearish for the market. But it does not mean that we go straight down. TA will tell you we should fill a gap to 740-750. Maybe we should, but I do not think that is going to happen. I think there may be more downside but I see 765 as a support level which will not be broken at least this week.

Why do I say that? Because I do think there is still sentiment that M2M accounting changes will suddenly and miraculously cure the banks problems. And I think there are hopeful longs out there willing to risk some money in financials expecting an announcement this week which will turn the markets. So look for buying on any further dips keeping the S&P away from 750.

We are, IMO, obviously in a bear market rally still. This is not a bull. This is a bear market rally and today showed that when news that is real hits the market, this market will go down and down quickly. Even the permabulls on CNBC are now doubting things. Sentiment is changing but I would not go short financials right now unless it is a quick day trade. Let the M2M news hit first and then lets see what kind of levels can be had.

SRS looked good today. There should be plenty more of that over the next 2-3 months. SRS should out gain the financial ETF's on any given day. REIT's are going to start going down fast and hard. On financials, you have to believe BAC is headed for under $1 in the next month. Sure it may change directions in the next couple of days and make a run, but by end of April, it will be $1 or less.

Watch the VIX. if it goes up to 47, I may change my mind and say we are in a bigger move down. But I suspect it will hover in the 44-46 range for a couple of days and market will edge higher.

Sunday, March 29, 2009

The Schizophrenic Market.

I have been spending a lot of time this weekend studying the latest news, anticipated news and general market sentiment. Anyone who says this market has clear sentiment or clear direction is either heavily invested to that side or has a crystal ball.

This market is directionless right now and even though the recent rally would appear we are in an uptrend, one can easily see a news or data driven event changing that trend. Yet, one can easily see a news or data driven event causing an escalated uptrend.

This market is schizophrenic. It appears to have dual personalities of being a bear and a bull at the same time. Some would say it is a bull within a bear. Others would say it is a bear morphing into a bull.

I will not come on this blog and tell you I know where the market is going from here. I will tell you that I think our economy is not getting better and all the good data coming out are giving false hope for investors and consumers. I wish I could say that the economy is getting better and that my friends who have lost jobs are finding news ones. Instead I see more friends losing jobs and coming to me for help finding jobs for them.

The banks can say what they want. They can claim profitability and talk about how things are getting better. The media pundits can say the mustard seeds are growing and hope has returned to the market. But the reality is on the streets. People are losing their jobs, their homes and their future. Shopping malls have more lights off, more signs coming down and more empty parking spaces.

But the market is driven by sentiment and, as we know, news rules. So, where do we go? Using my best abilities reading charts and using the VIX as a compass, I believe there is sentiment leaning toward a downward movement in the market at least at the beginning of the week. Also, how much of the M2M relaxing rumor is priced into the market? It seems there is quite a bit already priced in yet, depending on what the news is, the market could rally initially on any news and perhaps fill a gap to the 900 area very quickly. Then again, due to some of the rumor being priced in, if the results are disappointing, the market can and will drop quickly and dramatically probably to the 740 level if not 690.

So, what to do? I think you have to be in mostly cash right now. Options are probably the best place to be to limit losses and be able to cash in on big moves. Financials and tech will have the biggest swings over the next 1-3 weeks. I think a lot of people will make out big in this market. Unfortunately 2 or 3 times as many people will get crushed.

I still like SRS of course. But even I hesitate thinking of which direction it may go in the short term. I think playing some May puts on tech is a great option. Not the April puts because many do not report earnings until after April OPEX. VMW is set up for a big fall. GOOG I have been bearish about but there is so much momentum, it is probably not a great entry point for another week or so. I will be playing a FAS straddle this week and likely to make quick moves on them.

Good luck.