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No Politics. How many times must someone point this out?
I have no idea, I'm not an IB customer at this time. Maybe others can answer for you.
You got that right, AD. I have to remind myself that there is another trade around the corner, esp when I blow a good opportunity for some reason or another. What can I say? I'll be forever learning but I hate it when I have to re-learn some of those lessons.
Joe, not to worry -- I take full responsibility for my trades. My limit wasn't that far from today's high, and I think there will be some pressure upwards on this. So between the temporary upwards momentum cause by these rule changes and your "gut" I believe I'm making a good bet. LOL.
That said, I am seriously worried about the long term implications of all this regulation change. It doesn't bode well for the stock market.
Thanks on the broker platform info. Me thinks its time for a change and it looks as though there are good alternatives.
Teens? Wow, I better up my sell limit. I think I have it something in the 7's.
Yup, another one for the shoula, woulda coulda pile! I have plenty of those too. ;)
Thanks, aj, I'll do some investigating this coming week.
It seems that Tradestation is more for the seriously enlightened trader then?
Finding that GS was timely on your part.
As for my situation, I canceled an order and then about three minutes later the stock appeared in my account, despite the cancellation. During this time, the price was dropping like a rock. I was calmly upset!
Is IB for day trading only? If I move an account there I might be forced to finally learn charting. That would be a good thing I guess.
Anyone have thoughts if QLD can make it past 70 in the next few weeks?
I guess they could use the "there was stock ahead" line on you, but it is still worth fighting. I fought a late report on a fast moving stock a week or so ago and my broker ended up breaking the trade, much to my satisfaction.
Joe, I meant to tell you that I joined you on AFF a couple of days ago at just over 3. It is a small position, but I thought having some skin in the game would help me pay more attention to your interesting plays and that I might learn something! So far I have been distracted with other stuff, so not much in the way of learning yet.
I don't understand how a market order doesn't get filled. Maybe you should have your broker check time and sales on it (it might take them awhile thou)
AD, finally sold the DECK. Its higher now. LOL!
AD, I still have DECK long. My fingers weren't fast enough at the close and my ask was too piggy I guess. It should be interesting at the open, maybe I'll get a nice pop and unload it then.
I just couldn't take the excitement of having a winning position. LOL. So today I went long when I couldn't short. Up a little so far and won't hold overnight.
I finally covered my DECK yesterday. I tried to re-short this am and no shares available!! Bummer!
If they mean this past summer, it isn't very forward looking. :) The prices are low, due to the let up in demand from the mild? summer now passing. To me it makes more sense to look to what is anticipated this winter for demand.
<<incredibly bearish y/y weather comps>> They are predicting a mild winter?
Thanks Joe!
I always thought that gas was cheapest in NJ (and they even pump it for you - or at least they did.)
Joe, very interesting read. Do you know who wrote it?
Joe, what do you think the chances are for more senior debt (as compared to AFF) to be added to AIG?
Great trades, Joe! You're knocking 'em outta the park!
It is crazy out there and I feel your pain. I have been caught up with my mistakes and trying to stay calm while I fix it. I also am forcing myself to remember that last year about this time I took major losses that I was able to recoup and then some with my trades in '08. The odd thing for me, is that if I stayed the course, those major hurting positions last year would have been nice gains. I'm not saying that is appropriate to do in this case but the goal for me is to be able to "play" another day. Hang in there! This hardship will pass.
BTW, I bought some BZP yesterday. I see today I could have gotten it cheaper. Oh well.
What's going on with UAUA? Edit: Looks like chapter 11
I had the same translation. :(
If so lovely, why be in a rush to leave?
Thanks cy and aj. Lets hope DO holds 100.
DO, I need to ask myself, "what would Pantera do with DO?"
(Pantera, feel free to answer. LOL)
AD, I'm in the same boat. I forgot about a limit order I had on DO, and it was executed this am. I'm instantly underwater! I think I'll be ok, but I'm wondering if I should take the loss and get in lower. Ugh.
Well written piece by Liz An Sounders on credit troubles including a blurb on preferreds (in case you haven't seen it Joe). Special Note to BasserDan: She cites John Mauldin.
---------------------------
Turn the Page: Credit Crisis Turns One and Enters the Terrible Twos
by Liz Ann Sonders, Senior Vice President, Chief Investment Strategist, Charles Schwab & Co., Inc.
September 2, 2008
* No imminent end in sight for credit crisis.
* Easing credit spreads and end to housing deflation = keys to recovery.
* Floating-rate notes = latest chapter in crisis.
* Fannie Mae (FNM) and Freddie Mac (FRE) on their way to being nationalized?
It's been nice to write about slightly more positive topics lately, including the rout in commodity prices, the U.S. stock market performing better (at least in relative terms) and some nascent signs of housing's woes easing. (Read more on this topic in the Schwab Investing Insights® newsletter September cover story). But, alas, all is not well, certainly not in the credit markets generally, and for banks and the government-sponsored enterprises (GSEs) specifically.
At the close of the recent Federal Reserve annual retreat in Jackson Hole, Wyoming, Stanley Fischer, the governor of the Bank of Israel, had this to say: "There is enormous uncertainty about where we stand at the moment. We are in the midst of the worst financial crisis since World War II. So far, in real economy terms, we are not looking at anything exceptional." But the credit crisis is entering a "second round" in which economic and financial weakness could feed on each other. Alan Blinder, a former Fed vice chairman under Alan Greenspan, also remarked that: "It is amazing a year later how much is still unresolved."
One year later … still no end in sight
In Jackson Hole, it was made clear that more than a year into the credit crisis, global central bankers remain uncertain as to its ultimate impact on the global economy.
Nervousness and elevated credit spreads linger as investors come to grips with the notion that there are no quick fixes to the crisis. Ongoing anxiety in the market can be seen by way of credit spreads, with the chart below showing the investment-grade corporate spread (over Treasuries). Liquidity and credit risk concerns have surged since early 2007, explaining why this (and other) credit spreads are at all-time highs. Anxiety remains elevated because the nagging write-down story may only be halfway over at best.
Investment-grade corporate bond spread back above Bear Stearns-era level
chart: Investment-grade corporate bond spread back above Bear Stearns-era level
Difference (basis points) between yield on investment-grade corporate bonds and U.S. Treasuries.
As of August 28, 2008. Source: Bespoke Investment Group, LLC (B.I.G.)
This is but one visual for elevated spreads—they're elevated across the board: investment-grade corporate, high-yield/junk, and the London Interbank Offered Rate (LIBOR) spreads all remain too high for comfort. We need to see spreads come back down to historical norms before we can declare an end to the credit crisis in our sights. The other sign to look for is an end to real estate deflation (more on that to come in the next newsletter). As long as the collateral underlying banks' assets is sinking, their willingness to lend is hampered.
Noose tightening around lending standards
As you can see in the charts below, standards have tightened dramatically—and not just for consumer loans, but for commercial and industrial (C&I), and commercial real estate loans, too. Economies rely on credit, and when they're deprived of that credit, they suffer. But, it's as much about confidence as anything and, as you can see, crunches in lending standards tend to be more of the V-bottom variety versus long, drawn-out affairs. Banks are in business to lend, and when conditions improve, they're quick on the trigger. Unfortunately, we don't appear to be near that inflection point.
Lending standards tightening for consumer, commercial and industrial, and commercial real estate loans
chart: Banks Tightening Lending Standards
chart: Banks Tightening Lending Standards
chart: Banks Tightening Lending Standards
Data for commercial and industrial loans, and commercial real estate loans plotted on inverted y-axis scale. As of September 2, 2008. Source: FactSet.
Losses mounting
Credit losses and their impact have migrated from subprime into nearly all segments of household finance (like credit cards, auto loans and even prime mortgages). Standard & Poor's now expects losses on the books of U.S. banks to reach $285 billion a year for the next two to three years.
And, although successful capital-raising has so-far offset losses the financial institutions have incurred from write-downs (which now total more than $500 billion), that capital has largely been in the form of hybrid securities with both debt and equity characteristics. As a result, Standard & Poor's notes that "the quality of banks' capital has eroded somewhat." And this says nothing about the regional banks, about which we've expressed concern during the past year. Their ability to raise capital is significantly constrained relative to the larger commercial banks.
Olympics are over, but banks still hurdling credit problems
U.S. (and European) banks are waking up to a new challenge in the credit crisis—paying off hundreds of billions of dollars of debt coming due. Beginning in 2006, banks were heavily using floating-rate notes (notes with variable interest rates) to borrow money. They typically mature in two years, and are coming due during the next year … at a time when they're fighting to raise new capital. This is forcing banks to sell even high-quality assets, issue expensive new debt, and compete aggressively for new deposits.
The problem gets illuminated in earnest this month, when nearly $100 billion in floating-rate notes mature. JPMorgan estimates that financial institutions will have to pay off upward of $800 billion in floating-rate notes and other medium-term obligations by the close of 2009. That's over 40% more than they had to redeem in the prior 16 months.
Let's do the math: Assume a bank borrowed at LIBOR plus 50 basis points in 2006. Today, most banks can't borrow at such low rates. Instead, if they have to pay 11%–12% to borrow money when the prime rate is at 5% and they are lending at 7%–8%, their profits take a hit. This remains one of the reasons we have not yet upgraded the financial sector to an outperform rating.
The problem isn't going away anytime soon
The Federal Deposit Insurance Corporation (FDIC) said last week that its list of "problem" banks at risk of failure had grown to 117 at the end of June, up from 90 at the end of March, with the troubled lenders having combined assets of about $78 billion. Indeed, there are more than 8,000 banks nationwide, so 117 is not a big number, but remember, IndyMac (which failed a few months ago) wasn't on that list, highlighting that failures can happen quickly and without much warning. Industry-wide, bank earnings plunged 86% from April to June this year.
FDIC Chairwoman Sheila Bair said the agency might have to borrow funds from the Treasury Department to see it through an expected wave of bank failures. As many banks juggle to pay the floating-rate notes, profit margins are likely to continue to suffer as investors demand higher rates for new borrowings. Banks are becoming less and less willing to make new loans as a result, only aggravating the economic woes both here in the United States, and in Europe.
Nationalize Fannie Mae and Freddie Mac?
No discussion of the credit crisis would be complete without mention of the GSEs, Fannie Mae and Freddie Mac. Last month, the U.S. Treasury was granted the power to extend its credit lines to the GSEs and to invest in their debt and equity if necessary. Amid many reports of the growing likelihood of a government bailout, which would wipe out the equity holders, the stocks have been at the mercy of unrelenting selling pressure and are both down more than 90% since their August 2007 highs.
Given current real estate values, Congressional oversight committees estimate the losses for Fannie and Freddie to be about $25 billion. But with those values continuing to sink, the loss estimates continue to rise. Adding fuel to the fire is an economy not recovering, leading to independent (from government) estimates that are double or more relative to those out of Congress. As noted by John Mauldin in his Thoughts from the Frontline newsletter1:
1. "There is $36 billion in preferred shares as of June 2007. Then there is $19 billion in subordinated debt. These firms back $5.2 trillion in mortgage securities. As an aside, that means even a 1% loss from foreclosures would mean a $50 billion portfolio loss. Care to make an over/under wager on a 1% loss by this time next year? I don't think I would want the under."
And, none of this includes the estimated $62 trillion in credit default swaps written against Fannie and Freddie debt (12 times the actual debt), with nobody knowing who is on the hook for these derivatives.
As Mauldin noted:
1. "Critics have suggested that Fannie and Freddie are nothing but hedge funds with an implicit government guarantee. This is an insult to hedge funds. Hedge funds don't pay hundreds of millions in campaign contributions so that they can risk taxpayer dollars, prop up their profits, and pay huge bonuses to executives. They risk their own capital with no safety net.
2.
3. Fannie and Freddie are banks that are levered between 40 and 50 times. I can think of two hedge funds, Carlyle Capital and Long-Term Capital Management, that had leverage at those levels. They both went bankrupt, as will any such levered business."
Some equity holders already voting with their feet
Federal Reserve custody data released last week showed foreign official and private investors have been reducing their holdings of agency debt for six consecutive weeks. At the same time, the Bank of China revealed it trimmed its portfolio of securities issued or guaranteed by the GSEs by 25% ($4.6 billion) during the past month. Maybe a month's actions don't make a trend, but if this were to continue, it would pose more problems for the GSEs, given that global central banks have taken somewhere between 30% and 60% of new GSE issuance in recent years.
On CNBC, Warren Buffett, the "Oracle of Omaha," weighed in last week, too: "Fannie and Freddie, which underpin America's mortgage market by buying home loans and packaging them into bonds, do not have any net worth." He feels there will be government action "fairly soon," believing it is no longer feasible for them to exist independently.
According to BCA Research, the catalyst for nationalization of the GSEs will be when short-term bond investors decide they are no longer willing to allow the agencies to simply roll over their debt. Fannie and Freddie together must raise an average of $55 billion each month simply to meet existing debt obligations as they come due during the next six months. As we know, access to debt financing is no longer a sure thing.
Paulson's dilemma
For now, we wait to see what the Treasury Department will do. As noted in this past weekend's The Wall Street Journal, Treasury Secretary Henry Paulson is meeting daily with his staff to weigh the merits of an intervention, with scenarios ranging from buying preferred shares in the companies to various structures for lending. He also has to weigh whether to treat both companies equally, whether to leave their managements in place, and what the effect would be on common and preferred shareholders (e.g., many pension funds). The main concern is that a large capital injection would essentially amount to a federal takeover of the companies, including responsibility for guaranteeing trillions of dollars' worth of home mortgages.
The bottom line is that the deepening toll from the global financial crisis is likely to trigger many bank failures, even a large one, suggesting there's likely more turbulence ahead for the financial system. For now, lower oil prices and a rallying dollar are boosting equities, but we would caution against complacency regarding the financial crisis.
1. John Mauldin, best-selling author and recognized financial expert, is also editor of the free Thoughts from the Frontline that goes to more than 1 million readers each week. For more information on Mauldin or his free weekly economic letter go to: http://www.frontlinethoughts.com/learnmore.
http://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/recent_commentary/credit_crisis_enters_year_two.html
Newly, it looks as though you are running out of real estate going east!
By the way, it seems as though you have been blessed with wonderful weather in your travels thus far.
When is your travel book going to be published? :)
That was fun to read. Thanks Joe!
OT I'm lovin' the photos, Newly. Thanks for continuing to share them. I'm glad the trip is going well for you.
RMBS catching some bids as of late.
AMLN continues to get beat up with the Byetta news.
Sorry to hear about your mom-in-laws bad experience. Interesting to me, though, that it was effective for what it was formulated for.
I would be hard pressed to take a drug for something that diet could control, but my Dad likes his food and he is obviously not alone!
My Dad took Byetta, but stopped taking it since it really had no positive impact on his type 2 diabetes. There is a lot of confusion about if the drug needs to be constantly refrigerated or not. I wonder if those with the problem injected "warm" stuff.
I've been surprised by the Russell 2000 strength as well. I expected to see the large cap stocks holding up the best in this environment. Maybe it is because of the weakness in those large financial stocks.
On QID top holdings; AAPL, GOOG, and RIMM would be strong and everything else weak but QID would seemingly follow those three.