Archive for March, 2009
Bye Bye Bernie (Madoff)
Posted by Jody Eisenman | Filed under Uncategorized
Disgraced financier Bernie Madoff pleaded guilty today to all charges and was promptly shipped off to his new home at the Metropolitan Correctional Center. Instead of his luxury penthouse apartment, Bernie will have the pleasure of a tiny cell until he is officially sentenced in June. On the plus side, he does get free meals courtesy of the State of New York. I think his days of eating filet minion are over. Like most people, I feel nothing but disgust for this criminal who intentionally stole billions from his friends as well as many charities and institutions. At least Nick Leeson (who’s unauthorized trades brought down England’s Baring Bank) tried to make money. Apparently, Madoff never invested a penny and just intended to scam everyone out of their savings. A truly lovely human being. Of course, there are still unanswered questions; namely, who else was involved, and where did the money go? It’s hard for me to believe that Madoff acted alone. Hopefully, the authorities will eventually get to the bottom of this scheme and charge everyone involved.
As I expected, the market continued its’ upward climb today. At the close, the Dow was up another 240 points, or 3.5%. The S & P 500 was up over 4%. The next key test for the S & P is about 800, or roughly 50 points. For the Dow, it would be roughly 8000. Curiously, most individual investors are not participating in this rally, other than equities they have owned for quite some time. Its’ always fascinating to me how investors that were clamoring to buy stocks at Dow 14,000, don’t want to buy at Dow 7000. Its’ a crazy world. I think much of this rally has been from two places: fast money (those who look to make quick profits and then get out) and short covering. When you are short (meaning that you sell stocks first, hoping to buy them back later at a lower price), your potential risk is unlimited (in theory, a stock could go to any infinite number). Therefore, short sellers tend to cover (by buying) quicker than people who are long might sell. As the short sellers cover, prices rise. Of course, sooner or later, after most people cover, the rally runs out of steam. Lets see how long it lasts.
Finally a Rally for Stocks!
Posted by Jody Eisenman | Filed under Uncategorized
After a series of horrendous declines in the market since the beginning of this year, the stock staged an impressive rally led by (surprise!) the financials. The Dow rocketed out of the gate, never really sold off much during the day, and closed up almost 380 points. Virtually every beaten up financial had a strong day, led by C (up over 40%!), Wells Fargo, JP Morgan and Morgan Stanley. I believe we have seen at least temporary lows for the market, which has been extremely oversold. I do believe this rally has legs, and I think we can possibly hit 800 on the S and P 500, which closed yesterday up at 719.60, up over 40 points, or about 6%. The rally began on Pandits’ comments that C has been profitable for the first 2 months of the year. I think it will continue because so many people have been short, and now they will probably cover. There is no rally like a short covering, where you see almost panic buying.
Despite the rally, one must still note that the very real problems in the US economy continue to exist. Therefore, I still believe that we are in a bear market for stocks, especially since the short term bond markets are actually deteriorating. If you are long, enjoy this while it lasts, but be prepared to put in stops in case we run out of steam.
How Bad Are Things Right Now?
Posted by Jody Eisenman | Filed under Uncategorized
President Obama gave a sound bite in Columbus, where he boasted of helping 25 new cops get hired due to his stimulus bill. Meanwhile, nationwide unemployment is soaring, and has now reached 8.1% officially. This is a jump of .5% in a month, or roughly 650,000 jobs. At this rate, we could hit 10% by the summer. With many potential bankruptcies on the horizon, I would think that 10% is quite likely. In Canton, there were over 700 applicants for a janitor’s position in a school. But hey, there are 25 new cops in Columbus.
– The real estate industry is getting crushed. As jobs disappear, consumer spending drops, and retailers are suffering. Some of the more prominent names to file in the last few months include The Sharper Image, Lillian Vernon, Bombay, Levitz, Fortunoffs and Wickes. As the retailers fail and close stores, the mall owners are feeling the pinch. These mall owners have billions cumulatively in debt that must either be repaid or refinanced. Either possibility would seem very risky today.
-According to the Wall Street Journal, many large banks got a total of $50 billion in the AIG bailout. The reason for this is that AIG still has many Credit Default Swaps (CDS) on real estate investments (CDOs and the like) that are owned by these banks. Should AIG default, these banks would be naked. In other words, a Chapter 11 filing without the government assuming these high risk liabilities could doom the counter parties, i.e. the banks.
– Speaking of CDS, according to a report from CNN, GE would have to come up with substantially more capital in case the ratings agencies decide to downgrade their credit rating. I think its’ rather ridiculous that GE still has a AAA rating, and its’ more than likely they will be downgraded this month. The question is just how far they will go. As I stated earlier this week, GE’s bonds are trading like junk paper in the market.
I continue to expect volatility in the markets. After a poor week, the Dow managed to eek out a 32 point gain with a late surge on Friday. All told, the DJIA lost over 6% for the week, almost 25% for the year to date. Despite this, the VIX is still at around 49, far below the panic levels of 80 back in November. This means that the implied volatility still may not have peaked, meaning the bottom could still be a way off. Then again, no rules seem to apply anymore, so anything is possible.
