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Buzz Bits: Tuesday, November 15, 2005


An evening taste of the daily buzz...


Earnings Summary - MV News - 4:13 PM

  • Abercrombie and Fitch Co. (ANF) reported Q3 EPS $0.88 vs $0.80 cons on revenues of $704.9M vs $698.5M cons. ANF guides the full year EPS to $3.44-3.49 vs consensus of $3.30.
  • Analog Devices (ADI) reported Q4 EPS of $0.36 vs $0.35 cons on revs of $622.0 mln vs $615.3 mln cons.

This Little Piggy Went to the Market - Todd Harrison - 3:29 PM

So why are the financials getting hit (and taking the tape with them)? They were (are) uber-overextended.

  • They ramped higher on the Boom Boom Bernanke "easy money" vibe. Selling the news--or in this case, the confirmation hearing--makes sense.
  • The yield curve is the narrowest since January 2, 2001 (the day before it inverted). (note: I don't think this is a primary causation but it's part of--and has been part of--the mix).
  • Even a broken clock is right twice a day.
  • If the stochastics were an artist, they would be Michelangelo.
  • Even God rested on the seventh day.


Flashback! - Bill Meehan - 2:44 PM

On this day last year we found:

In other news...

  • In 1777 the Continental Congress adopted the Articles of Confederation.

NOK, NOK, Nokia on heaven's door - Vitaliy Katsenelson - 1:07 PM

Excellent article on Nokia (NOK) in November 14 Barron's - the only business publication that I can recall patiently sticking by Nokia; discounting future cash flows, not past ones.

According to the article and by simply visiting, it is evident that Nokia should have a very robust portfolio of products hitting the market this holiday season. Though it still doesn't have a decent product portfolio in the US, I view that that as positive - things cannot get any worse in the US and are likely to get only better.

Despite lackluster offerings in the US, Nokia's brand still stands for quality and design, thus new product introductions are likely to receive a warm reception.

Position in NOK

What if? - Kevin Depew - 1:02 PM

Brad Sullivan's questions below are important ones: "What happens if a rally to new trading highs occurs with an increase in the overall participation of stocks?"

The NDX is already at new present rally highs while its bullish percent measure of participation is not, and the SPX is nearing 1250 and potential new rally highs while its measure of participation is not. Both are well below their January 2004 peaks.

This is a large scale, long-term bearish divergence, similar to 1997-2000, but greater in magnitude. The SPX Bullish Percent peaked at 84% in 1998 and began making lower February 2000. The Nasdaq Bullish Percent peaked in 1997 at 68% and didn't return to that peak at any time, even in 1999 or 2000 prior to the blow-off and collapse.

This time is different. The overall risk level of not just the US markets, but world markets is dramatically higher, and with increased correlation.

Pulse of the Planet - Jonathan Schwartz - 12:46 PM

News, laughs and ideas beyond borders.

Middle East

  • Intel to invest 4.4 billion on a new chip plant in Israel; create 4,400 jobs. To be largest investment by an industrial company.


  • Italian art good for the soul. Italian science good for the heart.


  • China's medical industry swells 24% year-over-year, reports Asia Times.


Mini-Minyan Mailbag - Scott Reamer - 11:16 AM

"Scotto, I agree (with your deflation thesis) and sold all my metals a month ago. What do you think helicopter Ben does in March? What do you think the bond mkt does in 06? Thanks Minyan Ron"


I think Bernanke does exactly what the market expects so as to not appear different from Greenspan. I think bonds rally hard in 06 as deflation takes hold and the economy sinks: a perfect bond market scenario and almost exactly what happened after 2000.

Risky Business - John Succo - 11:01 AM

The Guidant Corp. (GDT) options illustrate perfectly why markets are not efficient. It is a function of a lack of understanding of risk.

The last we left GDT we gave you a probability of 15-20% that the deal would not be completed despite the lawsuits and positioning of the companies. We felt that was part of the process.

Now that chance has diminished to 5% (the shareholders might not approve, but that would be stupid).

So we have to look at the options from a completely new perspective. It is a new position from yesterday.

But those that were pretty right about the result are taking their money off the table despite these new probabilities. They are paying too much to lock in profits.

This is a human tendency that plays itself out everyday in all forms: the misunderstanding of risk and thus mispricing of assets. Those buying stocks (mutual fund managers) for the wrong reasons into year end may be right by making money, but from a risk perspective they are taking too much risk.

This is why GDT options are still mispriced. We have adjusted our Johnson &Johnson (JNJ) and GDT options to reflect the new probabilities, but have done so by increasing our position today.

Position in GDT

Hello? Is there anybody in there?
Just nod if you can hear me?
Is there anyone home? - Todd Harrison - 11:00 AM

The Minx slinks through the muck with the flickering ticks seemingly stuck. While the rotation station continues (energy and semis are bid, the small caps and homies are offered), the broader averages are doin' a whole lotta nothing.

My sense is that Sammy won't last long--the combination of emotion and expiration will see to that--so I'm pounding my glove like Graig Nettles and sniffin' at the screens. I've yet to augment my risk profile but our journey is a constant and dynamic evolution.

The tape "feels" fine, mind you, but with our current field position (extended in the short-term) and looming resistance (S&P 1250), traders must first define their horizon before assuming risk. That, in a nutshell, is why blanket "advice" doesn't cut it.


PPI year/year change - Scott Reamer - 9:46 AM

Here is a chart of PPI (core: ex food and energy) showing the year over year change. The money AMS real liquidity figures strongly suggest that PPI has peaked and is about to roll over and deflate in, perhaps, a serious way. We remain strongly in the disinflationary camp here and find very little evidence to point to serious inflationary concerns going forward.

Mini-Minyan Mailbag - John Succo - 9:24 AM


I'm a chartist, but I've always had the bad habit of trying to find a cause in every move of the market, so i was just wondering if you have any idea of what may be behind this last month's BKX rally?

Minyan Enrico

ME -

Year end brings many flows that often do not correspond to information. For example, although there is a positive for banks in an upward shifting yield curve (as banks are slow to raise rates on deposits), this is only temporary. Yet a flattening yield curve, if it persists, is clearly negative for banking. So why are banks rallying into year end?

Winners tend to be bought and losers not as portfolio managers attempt to juice up their performance. Of course this makes any clear thinking person cringe, but that is Wall Street. The BKX has rallied off its lows and now offer those managers some return they can "bank" on (for now). This ignores risk but what is new about that?

In addition, my mutual fund sources tell me that big cap stocks are in "favor," whatever that means. Several of the largest capitalization stocks are banks.

We are slowly selling deltas against our long gamma positions; slow enough that we are actually delta long, but selling enough that any fall would quickly get us short with a 1% move down.

Short Covering into year end? - Phil Erlanger - 8:49 AM

We have noted that hedge fund managers who specialize in short selling are having a banner year, up 17.73% through September. This number is courtesy of a great source of hedge fund style returns. When October numbers are reported they surely will have added a couple more percentage points to their returns.
As the short bias returns have risen, so too has their tendency to become more aggressive. The last time we saw this much short selling on a relative basis was in March of 2003, which started a very strong rally that took the S&P 500 from 788.90 to 998.14 by July 6th. Clearly, this was a very powerful move as the S&P 500 jumped over 200 points in several months.

From now until year end, shorts may be in cover mode to protect profits and collect their hefty year end paychecks. We do not think that most market participants are focused on this concept. This month's short interest numbers will give us some more clues about the willingness of shorts to cover as strength emerges. The next monthly short interest release dates are November 21st for NYSE/AMEX and November 25th for Nasdaq. Stay tuned.

Say What?

A look at commentary, opinion and analysis from around the world:

  • This three-part series from Asia Times Online, "The Wizard of Bubbleland," by Henry C K Liu, also discusses "The repo time bomb," and "How the US money market really works."
  • Nicholas Eberstadt writes in the Wall Street Journal about the coming Asian "Old Age Tsunami." Naturally, I assumed this frightening article would be about a gigantic wave of old people headed toward us, "Who will stop them, and how?," but he meant "tsunami" in a metaphorical sense. Still, a somewhat interesting read though.
  • Also, the Wall Street Journal editorial team takes a surprising and alternate view of President Bush increasing pressure on China to further revalue the yuan, saying the revaluation risks upsetting a Chinese growth story that benefits everyone. Communists.
  • In China Daily, a call for equal access to finance throughout the Mainland... for now but a soft whisper that gently tumbles over the Great Wall, heard but never seen. (I just made that last part up.)
  • In the Financial Times, Philip Stephens has "A way to win young Muslim minds."
  • Finally, Pravda says that scientists have discovered a frozen mummy... which kills those who shatter its peace, but apparently not those who read about others who shatter the mummy's peace (I had intern Spider check).

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