Dealbreaker has it right..
“Every time this man speaks he adds uncertainty and regulatory risk to the markets.”
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FOMC Minutes
Key paragraph…
“In the Committee’s discussion of monetary policy for the intermeeting period, members generally agreed that the risks to growth had diminished somewhat since the time of the last FOMC meeting while the upside risks to inflation had increased. Nonetheless, the risks to growth remained tilted to the downside. Conditions in some financial markets had improved, but many financial institutions continued to experience significant credit losses and balance sheet pressures, and in these circumstances credit availability was likely to remain constrained for some time. At the same time, however, the near-term outlook for inflation had deteriorated, and the risks that underlying inflation pressures could prove to be greater than anticipated appeared to have risen. Members commented that the continued strong increases in energy and other commodity prices would prompt a difficult adjustment process involving both lower growth and higher rates of inflation in the near term. Members were also concerned about the heightened potential in current circumstances for an upward drift in long-run inflation expectations. With increased upside risks to inflation and inflation expectations, members believed that the next change in the stance of policy could well be an increase in the funds rate; indeed, one member thought that policy should be firmed at this meeting. However, in the view of most members, the outlook for both economic activity and price pressures remained very uncertain, and thus the timing and magnitude of future policy actions was quite unclear. Against this backdrop, most members judged that an unchanged federal funds rate at this meeting represented an appropriate balancing of the risks to the economic outlook and was consistent, for now, with a policy path that would support an eventual decline in both inflation and unemployment. Nonetheless, members recognized that circumstances could change quickly and noted that they might need to respond promptly to incoming information about the evolution of risks.”
Rates on their way up……..good
Full release:
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The SEC said “As a result (of short selling), the prices of securities may artificially and unnecessarily decline well below the price level that would have resulted from the normal price discovery process,” the SEC said. “If significant financial institutions are involved, this chain of events can threaten disruption of our markets.” Well perfect….more rules they will not enforce to protect people from themselves.
The agency’s rule change would prevent investors from making “naked” short sales of the biggest financial stocks (an investor sells stock that has not yet been borrowed). These companies would include Merrill (MER), Citi (C), Lehman (LEH), Morgan (MS), Fannie (FNM), Freddie (FRE), Wachovia (WB). Bank of America (BAC) and almost any other financial of any significance. Naked shorting is not always done intentionally as many times broker-dealers will accidentally fail to deliver stocks to investors who have arranged to borrow a stock. If it is done intentionally, it is illegal. If not intentional, it is a mulligan? Why is the investor being held up to scrutiny here? Why isn’t the SEC coming down on broker-dealers for doing it?
I cannot short shares without going through my broker, if they allow me to do it without having shares available to borrow, why is it my fault? They are the ones with the information, not me.
“Today’s commission action aims to stop unlawful manipulation through naked short selling that threatens the stability of financial institutions,” SEC Chairman Christopher Cox said in a statement.
The “new /old” rule would require a short seller to borrow the securities before executing the sale. It would also require the investor to deliver the securities on the settlement date. Hasn’t naked shorting been a no-no for a long time? Is this like Cox doing a Dean Wermer and now putting the investor community on “double secret probation”?
Now, As of June 30, shorts held about 14% of Fannie’s outstanding stock, almost 12% of Freddie’s, and 10% of Lehman’s stock. Does it matter that all three are sitting on billions in losses and actually may go under? If their performance did not suck, the shorts would ignore them. This is the genesis for Cox finally coming in off the golf course.
Bill Fleckstien said, “While no one in Washington did their job, now they are trying to blame short sellers,” he continued, “Short sellers don’t make stocks go down. If a short seller was trying to push a stock to a price where it didn’t belong, it would come back right away.”
All this while the SEC subpoenaed Deutsche Bank (DB), Goldman Sachs (GS) and Merrill Lynch (MER) in a probe of suspected manipulation of Lehman Brothers (LEH) and Bear Stearns shares. The SEC requested trading records and e-mails.
They also sent subpoenas to more than 50 hedge-fund advisers, seeking trading and communications data related to short-selling and options trading in Bear Stearns or Lehman.
Here is what will happen. Cox and Crew are going to find their “patsy”. Some poor slob buried deep in a trading floor is going down and his boss will resign. They will find an email from the guy who said to someone “hey did you here the latest on Lehman?”. The rumor will have turned out to be false but no matter the intent, this lackey is going down. Then the SEC will hold a press conference, thump its chest and claim to be looking out for the “little guy” and protecting them from “rumor mongering price manipulators”.
The executives that caused the billions in losses are going to just walk away with their multi-million dollar paydays and Johnny, the one year out of business school derivatives trader gets 3-5 and a million dollar fine. Go Chris!!!!!
This is so predictable….
Disclosure (“none” means no position):Long GS,WB,C, none
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Wednesday's Links
Ambac, JP Morgan, Graham, Steve & Barry
– Perhaps the next time Dimon gets involved with a proposed buyout, he’ll make sure the CEO and Chairman know about it?
– I think it would be worth it
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Wednesday’s Links
Ambac, JP Morgan, Graham, Steve & Barry
– Perhaps the next time Dimon gets involved with a proposed buyout, he’ll make sure the CEO and Chairman know about it?
– I think it would be worth it
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Ackman's Presentation (ppt.)
Thanks to John for the email alerting me to this. It is a slide show on Ackman’s plan for Freddie Mac (FRE) and Fannie Mae (FNM)
Disclosure (“none” means no position):None
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Ackman’s Presentation (ppt.)
Thanks to John for the email alerting me to this. It is a slide show on Ackman’s plan for Freddie Mac (FRE) and Fannie Mae (FNM)
Disclosure (“none” means no position):None
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Wednesday's Upgrades and Downgrades
Upgrades
F5 Networks (FFIV)- Wedbush Morgan Hold » Buy
IntercontinentalExchange (ICE)- BMO Capital Markets Market Perform » Outperform
CSG Systems (CSGS)- Brean Murray Hold » Buy
Acergy (ACGY)- Lehman Brothers Underweight » Equal-Weight
Schering-Plough (SGP)- Lehman Brothers Equal-Weight » Overweight
Bankrate (RATE)- Roth Capital Hold » Buy
Nike (NKE)- Susquehanna Financial Neutral » Positive
CSG Systems (CSGS)- Citigroup Hold » Buy
Lennar (LEN)- UBS Sell » Neutral
eHealth (EHTH)- Oppenheimer Underperform » Perform
Downgrades
LaSalle Hotel (LHO)- RBC Capital Mkts Top Pick » Outperform
Continental Resources (CLR)- Broadpoint Capital Buy » Neutral
Cogent Communications (CCOI)- Friedman Billings Mkt Perform » Underperform
Memsic (MEMS)- Jefferies & Co Buy » Hold
LHC Group (LHCG)- BB&T Capital Mkts Buy » Hold
Sunstone Hotel (SHO)- RBC Capital Mkts Outperform » Sector Perform
Groupe Danone (GDNNY)- Citigroup Buy » Hold
Vail Resorts (MTN)- Banc of America Sec Buy » Neutral
American Intl (AIG)- Wachovia Outperform » Mkt Perform
Third Wave (TWTI)- Deutsche Securities Buy » Hold
Kimberly-Clark (KMB)- Wachovia Outperform » Mkt Perform
Wachovia (WB)- Oppenheimer Perform » Underperform
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Wednesday’s Upgrades and Downgrades
Upgrades
F5 Networks (FFIV)- Wedbush Morgan Hold » Buy
IntercontinentalExchange (ICE)- BMO Capital Markets Market Perform » Outperform
CSG Systems (CSGS)- Brean Murray Hold » Buy
Acergy (ACGY)- Lehman Brothers Underweight » Equal-Weight
Schering-Plough (SGP)- Lehman Brothers Equal-Weight » Overweight
Bankrate (RATE)- Roth Capital Hold » Buy
Nike (NKE)- Susquehanna Financial Neutral » Positive
CSG Systems (CSGS)- Citigroup Hold » Buy
Lennar (LEN)- UBS Sell » Neutral
eHealth (EHTH)- Oppenheimer Underperform » Perform
Downgrades
LaSalle Hotel (LHO)- RBC Capital Mkts Top Pick » Outperform
Continental Resources (CLR)- Broadpoint Capital Buy » Neutral
Cogent Communications (CCOI)- Friedman Billings Mkt Perform » Underperform
Memsic (MEMS)- Jefferies & Co Buy » Hold
LHC Group (LHCG)- BB&T Capital Mkts Buy » Hold
Sunstone Hotel (SHO)- RBC Capital Mkts Outperform » Sector Perform
Groupe Danone (GDNNY)- Citigroup Buy » Hold
Vail Resorts (MTN)- Banc of America Sec Buy » Neutral
American Intl (AIG)- Wachovia Outperform » Mkt Perform
Third Wave (TWTI)- Deutsche Securities Buy » Hold
Kimberly-Clark (KMB)- Wachovia Outperform » Mkt Perform
Wachovia (WB)- Oppenheimer Perform » Underperform
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Ackman is short the junior debt and equity of both, but not the senior debt.
First watch Rep. Paul Ryan from the Ways and Means and listen to his concerns regarding Fannie (FNM) and Freddie (FRE).
Now listen to Ackman’s plan:
Part 1:
Part 2:
Ackman’s plan is brilliant as it restores the institutions financially so they can help the housing market, punishes equity holders for investing in a company with equity of 140 to 1, save senior debt that has the implicit guarantee and uses most likely, no tax payer funds.
If you do not get it, listen to the plan again. It is very simple and covers all the bases as far as the current objections to any government involvement in them.
With all the hand wringing out there over both entities, this solution is by far the best proposed. Now, the skeptics will say “Ackman just wants to make money”. So what? Let him is he saves us all a whole lot more losses. Besides, if he comes up with the plan, why shouldn’t he profit?
Disclosure (“none” means no position):None
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Fed Releases Auction Results
Rates are going up…This is the highest interest rate for the auction yet.
On July 14, 2008, the Federal Reserve conducted an auction of $75 billion in 28-day credit through its Term Auction Facility. Following are the results of the auction:
Stop-out rate: 2.300%
Total propositions submitted: $93.344 billion
Total propositions accepted: $75.000 billion
Bid/cover ratio: 1.24
Number of bidders: 82
Bids at the stop-out rate were prorated at 10.77% and resulting awards were rounded to the nearest $10,000 (except that all awards below $10,000 are rounded up to $10,000).
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From the Donut's Mouth: It's About Value
16 months ago I said in a post comparing McDonald’s (MCD) and Starbucks (SBUX), “Of course there are the “coffee connoisseurs,” they will never go to McDonald’s and I am not talking about them, I am speaking of the great ambivalent masses in the middle. When all things are equal, price and convenience always win.”
Listen to the CEO of Dunkin Brands Monday morning:
Starbucks like to think of itself as the “Tiffany’s” (TIF) of coffee. Okay, I’ll go with it. Here is the issue. Tiffany’s does not have 14,000 locations. You cannot be the high priced option in a commodity business and have that many locations and survive a downturn without being severely bruised and battered.
Starbucks is responding by closing 600 location. Mark my words here….there will be more. Dunkin is getting the trade down business and even their CEO sounded cautious. If I were a Starbucks shareholder, based on this interview, July 29th would be a very nervous day for me. Q3 earnings come out and I would be highly shocked if Starbucks managed to come close to the 15 cents (down from 19 last year) analysts expect without some nifty tricks.
In what seems an eternity ago when shares sat at $37 I said they were due for a fall. When they got to $25 I said they were due for more downside and said the same at $21. Now at $14 and change, a price not seen since Sept. 2003, have they bottomed? Not by a long shot. Starbucks still trades at 17 times this year’s expected earnings. That expectation, I think is too high in which case the earnings multiple is actually larger).
Starbucks is going to struggle for the next year or two because other than closing a few locations, they have not made any fundamental changes that will make them more appealing to cash strapped customers. Unless they find a way to enable customers to feel a value proposition from going there, store trafic will continue to decline.
By the time it is all over, we ought to see shares trading at $10 each.
Disclosure (“none” means no position):Long MCD, None
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From the Donut’s Mouth: It’s About Value
16 months ago I said in a post comparing McDonald’s (MCD) and Starbucks (SBUX), “Of course there are the “coffee connoisseurs,” they will never go to McDonald’s and I am not talking about them, I am speaking of the great ambivalent masses in the middle. When all things are equal, price and convenience always win.”
Listen to the CEO of Dunkin Brands Monday morning:
Starbucks like to think of itself as the “Tiffany’s” (TIF) of coffee. Okay, I’ll go with it. Here is the issue. Tiffany’s does not have 14,000 locations. You cannot be the high priced option in a commodity business and have that many locations and survive a downturn without being severely bruised and battered.
Starbucks is responding by closing 600 location. Mark my words here….there will be more. Dunkin is getting the trade down business and even their CEO sounded cautious. If I were a Starbucks shareholder, based on this interview, July 29th would be a very nervous day for me. Q3 earnings come out and I would be highly shocked if Starbucks managed to come close to the 15 cents (down from 19 last year) analysts expect without some nifty tricks.
In what seems an eternity ago when shares sat at $37 I said they were due for a fall. When they got to $25 I said they were due for more downside and said the same at $21. Now at $14 and change, a price not seen since Sept. 2003, have they bottomed? Not by a long shot. Starbucks still trades at 17 times this year’s expected earnings. That expectation, I think is too high in which case the earnings multiple is actually larger).
Starbucks is going to struggle for the next year or two because other than closing a few locations, they have not made any fundamental changes that will make them more appealing to cash strapped customers. Unless they find a way to enable customers to feel a value proposition from going there, store trafic will continue to decline.
By the time it is all over, we ought to see shares trading at $10 each.
Disclosure (“none” means no position):Long MCD, None
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Tuesday's links
Congress, Sad, Mercer, Energy
– Oh please……..
– Snow was a good guy and ignored the bomb throwing so prevalent today.
– A hell of a guy
– This guy just may be right
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Tuesday’s links
Congress, Sad, Mercer, Energy
– Oh please……..
– Snow was a good guy and ignored the bomb throwing so prevalent today.
– A hell of a guy
– This guy just may be right
Visit the ValuePlays Bookstore for Great Investing Books