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Buzz Bits: Dow and Nasdaq End in the Red


Your daily Buzz & Banter highlights.

Editor's Note: This is a small sample of the content available on the Buzz & Banter.

Loud Noises! - Quint Tatro - 2:34 PM

Good afternoon, Minyans. If you want to get a real sense of what is going on out there, follow these instructions:

  • Step 1: Unplug monitor.
  • Step 2: Flip monitor upside down.
  • Step 3: Plug in monitor and turn on.

The point is simple. There will be many who want to call or catch a bottom here. They will come on and pound the table on a certain stock or market when in reality, if you viewed the action from a technical perspective, you would see clearly that this is not the time to step in and try to be a hero. When stocks are breaking higher, I never am one to jump in and try and short. When stocks are breaking lower, I have no desire to buy. It isn't sexy and it sure won't get me much air time, but cash is the best play at this moment in time.

Is there a possibility of a snapper? Sure there is, there always is, however considering the options and playing it are two different things and rather than fish for longs if you think we're snapper worthy here, lighten up on the shorts. I have done nothing and am still holding some of the names we have discussed over the last few days. Here's a quick rundown.

  • Shengdatech (SDTH): I am long and have a stop under $12.00. I will keep this one small as I don't want to get caught in a down draft however I still think it has a shot to work.
  • FCStone (FCSX): It is consolidating yesterday's move today and I will continue to hold shares. I have no desire to do anything with this winner unless of course it starts breaking below $48.
  • Bob Evans (BOBE): This stubborn short is hanging on by its fingernails. My stop is over yesterday's high however if it manages to hammer on volume, I will probably cover all but a smidge to avoid being squeezed tomorrow.
  • Nordstrom (JWN): Like BOBE, this short is trying to manage a comeback despite still being down close to 5%. I still like this as a longer term short but my thesis applies here as well. A big hammer will have me lightening up and a move over yesterday's high will have me covering.

Cash and humility, Minyans. You won't hear it much in the major media, but it will save you more times than not.

Position in SDTH, FCSX, BOBE, JWN

Citigroup Therapy - Minyan Peter - 2:09 PM

While a lot has been written on Citigroup's (C) numbers this morning, here are my key take aways:

  • Total assets are down 7.4% or $176 billion since September, which includes the addtion of $50 billion in SIV assets. Citi took its trading accounts and investment portfolio down hard during the quarter in order to shrink the balance sheet. Loans were up a little bit.

  • US Credit card ROA was 1% on managed loans for the quarter, down from a peak of 2.91%. On balance sheet card assets went from $35.9 billion at the end of 3Q to $42.5 billion due to the "closing" of the credit card ABS market. Interesting to note that Citi recorded a loan loss release because it moved cards loans to held for sale, which begs the question "What happens if the ABS market remains closed?"

  • Portfolio yield in their card business actually declined by 51 bps while losses rose 58 bps in the quarter. 12 month lagged credit losses rose 86 bps. More interesting to me is that quarterly losses have moved from 2.4 times prior quarter 90+ delinquencies to 3.3 times over the past year. If this pattern holds, card losses should rise another 50 bps to 5.8% in the first quarter of next year.

Last Man Standing - Mark Bloudek - 11:32 AM

It looks like the last man standing is gold as oil has pulled back over the last couple of weeks while gold continued to race higher. I am becoming more bearish on this on an absolute basis for a trade (a.k.a. Short term time horizon). I know and understand that there are intense sentiments surrounding the precious metals sector, but we must keep things in perspective.

Assets are beginning to deflate (think housing) and this deflationary force should induce pressure on the price of gold, but gold will likely remain a relative outperformer when compared to most other assets as it retains its safe haven status.

China and the Euro/Yen Cross - Fil Zucchi

We have often discussed how the Euro/Yen currency cross is a good proxy for risk appetite. I have also buzzed that while there are some very "real" aspects to the Chinese economy, there were very "real" aspects to the Nasdaq '98-'00 bubble... it just took a 90% plunge to shed the not so "real" parts of it.

The chart of the Euro/Yen cross is now teetering on the edge of some very serious "issues", and it stands to reason that a pullback in risk will likely show up first where risk smells highest, China being such a place. Given the lockstep between the cross and the iShares China 25 (FXI), the cross does not bode well for the FXI.

When talking about China of course one must also weigh the manipulative powers of the government, which is not likely to sit and watch its financial "markets" (term used loosely) collapse months before the Olympics.

My read is in contrast to Prof. Udall's very valid observations from yesterday, so as always, "respect but don't defer". The bottom line is that I see danger flags flying high over the China obsession, although the day of reckoning may not yet be here.

Position in FXI, FXP


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