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Buzz Bits: Dow, Nasdaq Close Lower


Your daily Buzz highlights...


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

Earnings Report - MV News
  • Motorola (MOT) reported 3Q EPS of $0.32 vs. $0.33 cons on revs of $10.60 bln vs. $11.06 bln cons.
  • Novellus (NVLS) reports 3Q EPS of $0.57 vs. $0.51 cons on revs of $44.0 mln vs. $447.1 mln cons.
  • IBM reports 3Q EPS of $1.45 vs. $1.35 on revs of $22.60 bln vs. $22.06 bln cons.
  • Intel (INTC) reported 3Q EPS of $0.22, including a net gain of $0.015, vs $0.17 cons on revs of $8.70 bln vs $8.61 bln cons.
  • Yahoo! (YHOO) reports 3Q EPS in-line of $0.11 on revs of $1.12 bln ex-TAC vs. $1.14 bln cons.

I know what you're thinking. "Did he fire six shots or only five?" Well, to tell you the truth, in all this excitement I kind of lost track myself. - Todd Harrison - 3:10 PM
  • Television's JeffMacke® mentioned that this is a bullets sorta day. How can we have bullets if we don't have any Dirty Harry?

  • I would imagine that Boo is having similar thoughts. I don't think he can flip the switch today--tapes that are heavy all session with 2:1 negative breadth tend to end that way--but given the overnight news, tomorrow is promised to no bear.

  • Hoofy, ever the optimist, will point to the FLAT banks (back above BKX 114) as proof positive that supply is contained.

  • Given how overbought we are, however, I'm not betting on Snapper. I respect him, of course, but I'm not buying him.

  • I can't imagine that Yahoo! or Intel will have good things to say. With that said, please note the field position of each. The former is on its heels while the latter remains stochastically challenged.

  • A few Minyans have asked about sponsoring the December 1 Festivus. We can do that! Further, if Minyans have an interest in donating items or services for the silent auction, please ping Miss Vanessa.

  • As always, I hope this finds you well.


Idea Trolling - Jeff Macke - 2:30 PM

Fleshing out the Yahoo! (YHOO) conversation Pepe and I were having, and sticking to Bullet Point format because it's that kinda day:
  • Yahoo warned on revenues last month; guiding to the low-end of a 1.12 - 1.25B revenue range. The Street expects 11-cents on 1.15.
  • The Street, me, everyone else and their brother expects Yahoo to be utterly uninspired in verbiage and outlook. Yahoo is the Counting Crows of dot-coms; we were all a little too excited about them at one point and that fact embarrasses us a bit now.
  • Yahoo closed at 29-flat on September 18, the day before they warned. It's trading at 24 as I type. With the stock off 17% just in the last month (which was a pretty good month for stocks, as I recall), isn't a whole lotta bad news already "in" Yahoo?
  • Said another way, could the company possibly seem even more lifeless tonight than they did a month ago?

The October 25 calls are trading 55-cents on the ask. If they seem cheap at first glance, remember they expire in three days. After tonight's report, the vol on these things is going to get sucked up faster than Todd-O's gut when we ran into Emmi-Sloan last weekend.

I'm not playing the options but I'm officially Intrigued enough to throw the idea "out there" to the faculty and Minyans. Which is to say, I'll likely forget about the hypothetical buy of Oct 25's if they go to zero on the bid after tonight and, if Yahoo goes out at $30 on Friday, I'll go into a self-loathing funk for weeks (or at least a couple hours).

Eye on Copper - Adam Michael - 11:10 AM

I wanted to mention another commodity that I have had my eye on for some time…copper. Open interest in copper is currently 69,015 futures contracts with commercials at a net long position of 15,011 contracts, or over 21% of open interest. Commercials now have the largest net long position in copper that they have had since 2002. In addition, open interest has fallen to levels not seen since 2004.

I can't find the folks I talk with that are bullish on copper, but it has held up remarkably well during the most recent pullback of the CRB Index so it is certainly something to keep your eye on.

Last, I wanted to make some general comments on commodities and the COT reports. If you haven't noticed, some of the agriculture commodities have had large up moves recently (wheat and corn are two that come to mind). When I see moves like this in the agricultural commodities, AND commercials are about as short as they have ever been in the 10 year treasury futures, AND "Dr. Copper" is holding up with commercials leaning on the long side…I have to think Inflation/Stagflation.

ICOS ICOS ICOS - Adam Warner - 10:36 AM

Eli Lilly (LLY) taking over ICOS for $32 in cash, taking the best-named biotech off the market.

And if anyone (other than Jerry in 1988) knew about this deal beforehand, they didn't seem to play it in the options. No major volume, no volatility movement. And that is a good thing, as a bad option position in front of a cash deal is about as painful an option experience as possible.

Why dat?

Because virtually all time premium gets snuffed out. Check out this ICOS now. The Nov 30 calls are $1.75 bid, $1.90 offer. The Jan '09 30 calls are $2.15 bid, $2.45 offer.

That spread closed at about $4.75 yesterday. Major pain for anyone long any sort of calender here.

Bonds maintain their bid. Surprised? - Bennet Sedacca - 9:40 AM

The first move was lower in response to the core PPI increase of +0.6%. The next move was up about 1/4 point in 10's, perhaps in response to the overall number that includes food and energy.

Resistance in 10's remains just above in that old level I have noted in the past in 10 year futures around 107-16. I imagine traders will fade any move to that area but my firm intends to hold our position as it is long term in nature.

I will be curious to see how bonds react to the CPI.

Holy cow! I just saw the net foreigners' purchases of our securities. It is OFF THE MAP AT $116.8 billion versus estimates of $56.5 billion. That is important. A HUGE number.

See the chart here.

Position in 10 year note.

Debbie Downey - Fil Zucchi - 8:45 AM

A few lowlights from Downey Financial (DSL) earlier reported quarter (one of the potential "Housing Collateral Damage" plays):
  • Real estate acquired in settlement of loans, i.e., reverse amortization loans where the borrower chose to hand in the keys, doubled from last year, and was up five-fold from the December quarter.

  • Loan loss reserves increased almost 80% from year end to $61 mln.

  • Amount of negative amortizations accrued more than doubled vs. the December quarter, and almost tripled as compared to last year to $276 mln.

  • Give the company "credit" for doubling its loan loss reserves, but just relative to the $12 bln in negative amortization loans outstanding, it seems mighty skimpy.

  • Non-performing assets doubled compared to last year; delinquencies more than doubled compared to last year.

And now for the qualitative "shot across the borrowers bow " from DSL's CEO:

"In September, we increased the competitiveness of our option ARM pricing by lowering the start rate for borrowers who have high FICO credit scores and low loan-to-value ratios, with the goal of stimulating additional loan production for our portfolio, while at the same time limiting our credit exposure. However, we are not certain this pricing change will result in loan production completely offsetting portfolio payoffs, especially as we consider the implications of, and alternatives available to us in response to, the final guidance recently issued to depository institutions by the banking regulators regarding so-called non-traditional mortgage products, of which option ARMs are an example. At this time, we are assessing what impact, if any, this new lending guidance will have on our loan production volumes."

Just as I was about to leave Vail, Tony Dwyer and I had a brief conversation over whether new lending guidelines would create refinancing problems for borrowers. We both concluded that such an event would be unlikely, especially for a Fed which prints money at will. I am not sure that the CEO's words above suggest otherwise, but they come close enough for me.

Please keep in mind that all the current bullish thesis for the equity markets assume that the implosion of the housing market will not meaningfully impact the related debt/lenders, i.e. that homeowners will seamlessly skate out of toxic ARM's and into traditional mortgages. Should that not happen, I surmise everyone would agree that all bets for the markets and the economy are off. Stay tuned.

Position in DSL

What you need to know... - Jon Doctor J Najarian - 8:05 AM

  • Prices for natural-gas futures rallied Monday to close with a nearly 14% gain, recouping last week's loss with cold weather in parts of the U.S. But who cares as long as the Bears beat the Cardinals! Yess!

  • World's Biggest Retailer Expands In Biggest Market - Wal-Mart (WMT) has agreed to acquire a Chinese supercenter chain for about $1 billion. This will give the world's largest retailer the biggest food and department store network in China.

  • ITW Earnings Wednesday – The mechanical engineering company hit fast and furious on the Heat Seeker with buyers of the October 50 calls paying $0.50 & $0.60 and moving up to $1.00. Calls outpaced the puts in October by a 6:1 ratio.

  • Orbotech Hits Heat Seeker – My firm had unusual activity in this Israeli company that is a world leader in hi-tech inspection and imaging solutions all day today. ORBK traded over 400% of its 3 month average so keep an eye on this one.

  • Franklin Electric makes and distributes groundwater and fuel pumping systems and it has made it to the top 5 of our Heat Seeker program for the second session of the past four.

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