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Buzz Bits: Dow and Nasdaq End Higher


Your daily Buzz & Banter highlights.

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

A squeeze coming in financials? - Bennet Sedacca - 3:40 p.m.

I've been reviewing the number of shares short in many of the financial names. To be sure they have been right. But the sheer number of shares short relative to normalized trading volume is enormous. When we factor in how many days there are to cover, a name like Fannie Mae (FNM).

The days to cover is 'only' 2.08 days as volume spiked to 37.5 million shares of late and there are nearly 78 million shares sold short . But what if we drift into the summer doldrums and volume dries up to something on the order of 5 million shares a day. Now we have, voila, 15 days to cover. Can you say 'short squeeze'? The short interest table is below.

Click to enlarge

What happens if it gets rolling? A move to 40 as seen on the chart below cannot be ruled out. Everyone I know is stressed out about a large equity or preferred raise (or likely a combination thereof) which I happen to think would go rather well, particularly a convert, a la the Lehman (LEH) deal.

Click to enlarge

And so ya know, most financials in the XLF look the same. I'm sure some can be explained away by options, but surely not all of it. So my vote is for a seasonal rally in XLF (no I haven't changed my long term view, but this risk reward makes sense to me with defined risk.

Position in XLF options

Pullback in Q's Appears Complete - Michael Paulenoff - 2:35 p.m.

The Q's (QQQQ) appear to have finished a minor pullback off of yesterday's high at 46.01 into today's low at 45.14 and have turned up sharply after absorbing and/or shaking off the negative news about jobless claims. The fact that prices have turned up sharply ahead of tomorrow's Employment Report is very interesting -- and dare I suggest provocatively bullish action.

Of course, the overall pattern carved out by the Q's since late January supports a run towards 48.00, so I won't pretend to be surprised that the price structure is climbing on a day before an important data point that usually is dull and uneventful. Be that as it may, as long as today's low remains intact at 45.14, my work will argue that a new upleg is in progress that points to 46.70-47.00 next on the way to 48.00.

Click to enlarge

The Unfreezing Process! - Todd Harrison - 2:25 p.m.

The following are the first things that are popping into my head as I scan the screens and chase thy dreams:

  • Man Google (GOOG) trades heavy. Sorta brings up the quandary of whether you wanna buy laggards for the "drag" higher or if they're laggy for a reason. I had the same thought about Wachovia Bank (WB) as it was the only redhead in the post-Merrill (MER) lift. It is, so you know, still red.

  • I'm protesting the MV Weight Loss Challenge as President Fish has obviously been prepping for the event. I, on the other hand, remain a relatively svelte 196 lbs, virtually guaranteeing that the only way I could lose more weight than Kevin on a percentage basis is to cut off my arm.

  • I've gotta tell ya, this entire congressional testimony is surreal. Our central bankers are telling us that the entire capital system was on the brink of Armageddon--and the conditional elements of such remain in place--but the market is shrugging it off. That's either really bullish or extremely bearish.

  • Would it "matter" if it came to light that Bank of America (BAC)-Countrywide (CFC) was "nudged along" by the Fed much the way that JPMorgan (JPM)-Bear Stearns (BSC) was? Along those lines, do you think Ken Lewis (BAC CEO) is thinking to himself "Why did Jamie get the put option and I didn't?"

  • It can't be easy being Alan Schwartz right now. I will say this though, the whole "the rumor became reality" discussion speaks to the importance of social mood and risk appetite. Perception, as we know so well, is reality on Wall Street.


Looking deeper into Fed testimony... - Minyan Peter - 2:08 p.m.

While a lot of attention has been given to Fed Chairman Bernanke's speeches over the past 24 hours to Congress, I would encourage all Minyan's to read NY Fed President Timothy Geithner's speech from this morning.

In his speech Geithner states, "It became clear that Bear's (BSC) involvement in the complex and intricate web of relationships that characterize our financial system, at a point in time when markets were especially vulnerable, was such that a sudden failure would likely lead to a chaotic unwinding of positions in already damaged markets."

And at the end of his speech, Geithner goes on to say "We need to make the financial infrastructure more robust, particularly in the derivatives and repo markets, so that the system can better withstand the effects of default by a major participant."

As someone who has followed Geithner's candid remarks over time, I have no doubt that he gets it. And the "it" that I am referring to is not the subprime housing problem, let alone housing at all, the "it" is the interdependence of the world's largest financial institutions. If one goes, they all go. And it is why the central banks around the world are working in concert.

But at the same time, I would add that none of what I have heard today lessens the probability of further turmoil ahead. But I would caution anyone who believes that Europe can "decouple", that should another "global" firm stumble, it will require the nationalization of banking firms, not just in the United States, but around the globe.

To use Mr. Geithner's term, the web has been caste.

Position in SKF


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