Freaky Friday Potpourri: Do Good Earnings Lead To A Good Market?
The disconnect between perception and reality is massive.
Don't you feel better knowing that Ben Bernanke is on the case?
If the OSX couldn't rally with crude up 4%. yesterday.. gulp. We've seen this movie before, right?
And the kids they dance and shake their bones and the politicians throwing stones… This early jig is on fundies (earnings). The weight of late has been structural. Keep that dynamic in mind as you draw a line of distinction between good earnings and good markets.
The WSJ reports that "In a series of emails to senior bank executives, a former Royal Bank of Canada trader alleged that some of his colleagues intentionally "mismarked," or improperly valued, plain-vanilla government agency and corporate bonds in a bid to boost profits at the firm's New York-based investment-banking unit" Those are "plain vanilla" positions but that story sparked a thought. Lemme say this as innocuously as possible.
Big Wall Street firms have massive over-the-counter positions that with a single counter-party (they are contracts between to sides of the trade). Volatility is the most subjective variable (strike, expiration, etc) and can be "marked" at the discretion of the firm. When they have a bad day (in other positions), they can inflate the (vol) spread and "show" money. When they have a good day, they can reduce the spread and cushion accordingly. It's my sense that this process-which has been going on for as long as OTC products have existed-is gonna be the next sigh on the street. Did you ever see that segment on SNL Weekend Update called "Really?" That's sorta how I'm viewing each incremental data point these days.
- Countrywide (CFC) a teenager? Really.
- Merrill (MER) nine bean write-down? Really.
- Three stocks accounting for 50% of the NDX rally this year? Really.
- Banks at multiyear lows and the tape near all-time highs? Really.
- A proposed $100 billion bailout for a situation we're told isn't a problem? Really.
- There are "have" and "have not" firemen? Really.
I know, the back-to-back saved-from-the-abyss Snappers were nutty, right? Repeat after me, respect but don't defer. Respect but don't defer. Respect but don't defer...
Yesterday we saw more onion breadth. That's the Boo view.
Hoofy's take? "You can't take it with you when you're gone and they can't get 'em down anymore."
The NY Times reports that Merrill's CEO Stan O'Neal (don't blink!) floated the idea of a merger with Wachovia Bank without first getting board approval. The times speculates that this could cost Stan his job. I would offer that two multi-billion dollar write-downs in a matter of weeks already sealed that deal.
Goodnight Saigon? Deutsche Bank AG is now considering participating in the $80 bln plan supported by Hammering Hank Paulson to revive the commercial paper market. If this plan has "price transparency" now, as he requested a few days ago, I would love to see it.
Fish head music!
OK, so Microsoft (MSFT) looks like a triple top breakout, right? The textbook time to buy a breakout is when a stock (index) retests the acne. As such, circle $32, if and when and all else being equal, as a bovine backstop for Mr. Softy.
You wanna know what's nuttier other than Austin Powers' coffee? Baidu (BIDU) matters more to the current sentiment than Microsoft. The former is still a much meatier gorilla but that latter is the momentum darling du jour.
Lotsa Minyans have been weighing in with snappage on the MV mission, asking what they can do and how they can help. SO, since you (they) asked, I'll say "Come play with us at Festivus---it's gonna be a ton of fun with a slew of human capital and we're raising money for the kids. THAT is the Minyan way."
Don't call it a comeback, I been here for years.
What, did you really think I was gonna leave you hanging?
So... President Fish and I are gonna try this FOX Business thing again tomorrow as we introduce Hoofy and Boo's latest show. It's crazy, I've known Kev since we were teenagers and it's always been my dream to work with him. Save Ruby, he's the best man I've ever met.
"While I don't do a lot of trade for "scalps" or low percentages I will gladly take them when I see them. I've hit Sandisk (SNDK) a few times in recent days and am putting on another SNDK scalper. While I may leave part of the trade on to build up my core SNDK long that I started a couple points higher. Yet another name I would currently favor over Apple (AAPL) or Google (GOOG) at current prices."
-Professor Sean Udall yesterday afternoon on the Buzz. (Sean has a position in SNDK).
The following content appeared yesterday on the 'Ville but, as I believe it's important, I wanted to share anew. And yes, I am intentionally doing so as the pre-market futures are ramping higher….
No, But Seriously…
I get the whole "the reaction to news is more important than the news itself" thing. Heck, I think I may have coined that phrase (I honestly don't remember). But that's not the point. Here's the point.
The disconnect between perception and reality is massive. News is not good. I mean, I'm sorry--Merrill writing down $9 billion, Citigroup (C) earnings down almost 60%, residential real estate is crash... no, it's crashed, there's debt everywhere and sentiment was the third highest in history last week.
I know that news is always best at the top and worst at the bottom but that's sorta the point. The news is worst... at the top. We're near all-time highs. The banks are at multi-year lows. This is a finance-based economy. Is any of this making sense or am I eating a silly sandwich?
So here's the thing. Either this is, indeed, a new paradigm (in that the banks don't lead the broader tape) or we've got a slippery slope in front of us. And, so it's said, I would be quick to offer the latter matter is at hand if it wasn't for the other hand.
Sorry for the rant but I'm nothing if not honest. Well, honest and a little scared.
Holiday Festivus is here! Come join us and support the Ruby Peck Foundation For Children's Education at an old-fashioned Southern-style hoe-down in the heart of New York City on December 7th. Click the image below to learn more!
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at email@example.com.
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