Buzz Bits: Dow and Nasdaq End in the Green
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Holiday Trading - Quint Tatro - 11:30 AM
Breadth is decent, the positive action is broad and this is definitely Holiday trading. We aren't seeing many big pockets of momentum however I am watching very closely to see if this happens into the bell.
The big moves are coming from the Agriculture space with stocks like Monstanto (MON) and Mosaic (MOS) breaking out to new highs. If this theme can continue I suspect it would drag others higher and I started some Terra Nitrogen (TNH) in here as it is trying to once again break out of a trend it has been in since its July high.
The stock had a failed break attempt 2 weeks ago and has regrouped to give it another shot. I suspect the recent failed break shook many out so any break from here would be with strong hands giving it a better opportunity to hold and follow through. I will keep a stop slightly below $130.00 in the event the break doesn't take place.
Position in TNH
Gate Sniffage - Todd Harrison - 10:28 AM
- Look at me, the S&P! Yep, it's above the all-important 1490 level.
- All good thangs? Maybe wabbitt--we've talked about how thin the market is and "they" can do whatever they want with it. I would remind Minyans that we're edging through the post-expiration hangover and that typically takes an hour or so to abate.
- We spoke about the transfer of wealth as it relates to the banks. A gentleman on the show Friday offered that foreigners "see" the value and the ingenuity of the brokerage management. I have a slightly different take--this is occurring as a function of need rather than want.
- Today's Tellcheck? NYSE internals are better than 2:1 (Nazz 3:2),, the dollar is slightly lower, beta is mixed (I'm sniffin' a bit of lethargy but that might just be me) and the financials are frisky, which is far and away the most bullish think on my screen.
- The most bearish thang? The VXO (19? Oy vey is meir, that's not good)
- I saw I Am Legend yesterday. Suffice to say that I Am Disappointed.
- Note MS $55, which is the first resistance for Mother.
Merrill Lynch and General Electric - Minyan Peter - 8:15 AM
I believe that today's announced sale of Merrill Lynch Capital to General Electric (GE) is an important milestone in the continuing credit bubble unwind. It represents the first major sale of "good" assets by a struggling financial institution.
For GE, the transaction provides assets which it can fund cheaply thanks to its AAA debt rating as well as some cost savings due to operating synergies. For Merrill Lynch, the transaction reduces funding pressure and likely provides a boost to capital. That is not to say that the capital raise through Singapore or another global wealth fund is off the table. It isn't.
What this transaction with GE shows, however, is that raising additional capital through the Middle East and Asia will not be enough. More asset sales, not just by Merrill Lynch but by others as well, will be required.
And, while not as blatantly dilutive as the equity capital raises we have seen so far, these asset sale transactions represents yet another transfer of wealth from the struggling to the strong. It is why, on the other side of the bubble, for companies and individuals alike, capital preservation is so important.
A Pressing Question For 2008 - Mark Bloudek - 7:54 AM
One piece of news that I didn't see much coverage on this week was from the CEO of Bank of America (BAC) in the following article about prime mortgage customers.
This is the big elephant in the room because if the citizens of the US decide to walk away from their house due to being underwater on the mortgage (there are lots of people are in this position in California), then I don't see how very many banks (or the banking system) will survive in their current form.
I keep reading that foreclosures/defaults are rising (rate of change) at record rates. I then think to myself how many of the quantitative models that banks/financial firms use to model the rate of default must be going crazy right now. In this environment, I firmly believe that quantitative models are useless in the current environment because of the exact effect that the BofA CEO states in the above article. What is interesting about all this is that I used to ask people (over the past couple of years during the bubble) what they would do if home prices fell significantly (approximately 20-30%) and over half of them told me they would just walk away since they put nothing down.
So as I see it, one of the major themes of 2008 is the banking system dealing with this factor. Hank Paulson has started to try and address this with his "let's freeze the rates" proposal, but will it be enough to convince people to stay and not walk is the question.
And not one quantitative model can answer this question. Therefore, anyone that tells me the banks or financials have bottomed is just guessing as no one can reasonably predict the default rate going forward for mortgages. And of course some quant will tell me this the 1 in 50 trln event. Of course, Minyans know better than to believe such a statement.
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