Wednesday, May 14, 2008

The Financials

The Philly Banking Index(above) paints a rather uninspiring picture. As regular readers know I believe as go the financials so goes the market. This time is different will be an expensive lesson for many, as it always is.

Dow Jones US Financials Index(above) shows much the same picture as the Philly banking one does.

Nothing really different to report here of the Keefe Bruyette Woods banking spider as well.

The KBW regional banking spider shows a large pennant forming. You may recall I identified a large pennant forming on Bank America's chart yesterday. Lets step away from the charts for a minute and assume they are useless.
Okay, fundamentally where is the pop for the banks coming from according to Dick Bove of Punk Zeigel's buy of a generation call.
Investment banking and securititzation? Try another one, for if not altogether dead, then dormant for a heck of a long time. Commercial banking, domestic or international. Okay but quite frankly litigation problems abound for these banks. From the underwriting origination laden with fraud and remember if fraud can be proven then the toxic crap comes right back on to their balance sheets. Next up, Auction Rate Preferreds, yup, next to cash alternative. Ripping off your customers, nice way to build trust. Although I hear UBS is making people whole. Leveraged buyouts? Hah !, that LBO paper that never ever should have been done unless you were a 26 yr old, Ivy league MBA, black box reading, never been through a business cycle before. now sitting rotting on the books with management praying for a rally to get rid of the stuff business. Gone, gone gone. Even my buddies Rocco and Bruno downtown have more sophisticated lending standards and risk control. And before you bring up those sovereign wealth funds, they have already taken massive haircuts on their US banking investments so kiss that option good bye, but you can never rule out egregious stupidity in the annals of averaging down so you get the benefit of the doubt with them.
And while on the topic of Wall St. and their ability/credibility. Back when I started with my old firm back in 1992 I went into the office research library, we still had a library as we were making the tech transition. Our research was filed by sector and I remember grabbing a thick, bound, 60 page piece on Seagram, (ticker VO if I recall). You remember that outfit that Edgar, the artist ran aground, but that's another story. Anyway I was reading through it and was amazed by the depth of analysis not to mention the debt laden balance sheet, possibly more than all of Latin America. Strong Buy ! rang the report. Priority list stock. Model Portfolio core holding. You get the picture. No coincidence Seagram was coming to the markets and our (and everyone else on the street's) investment banking dept on a regular basis more often than a sailor on shore leave to the brothel.
Anyway as I was putting it back I saw a single sheet on a company called Corby's. Just some basic ratios with an NR, which stood for No Rating. What caught my eye.....NO DEBT, zero, nada, zilch. I accumulated some of the stock for some clients at the time but was scared to get deep into it as we had no rating on it and I really like being employed! Needless to say we all know what happened to Seagram. And Corby's, well, to call it a winner is a MAJOR understatement.
Just a little tidbit to keep in the back of your mind regarding Wall St., Bay St. and Lombard St.

Housekeeping notes;
I was stopped out of my long TWM position at $69.90 for a $4.5 pt loss on 1 unit.
I was stopped out of my long EFU position at 74.30 for a $2 pt loss on 2 units.

Good speculating to you all !
Open Positions:
Long 6 units Currencyshares Japanese Yen ticker FXY @ $88.55 stop at $91.40
Long 1 unit Allis-Chalmers ticker ALY @ $14.45 stop at $16.64
Short 2 units Daimler AG ticker DAI @ $86.20 stops at $82.48/$81.38
Short 1 unit Brinker Int'al ticker EAT @ $21.25 stop at $24.14
Short 3 units Retail Holders ticker RTH @ $96.72 stop at $98.56
Short 1 unit Goldman Sachs ticker GS @ $197.95 stop at $197.68
Short 1 unit Darden ticker DRI @ $37.30 stop at $40.27
Short 2 units Lehman ticker LEH @ $43.70 stop at $47.46
Short 1 unit Deutsche Bank ticker DB @ $117.80 stop at $120.18

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