Wednesday, July 2, 2008

Deutsche Bank pulling a Merrill Lynch/Lehman !!

I read, via Bloomberg, that Deutsche Bank (ticker DB) announced they not only have no need to raise capital but they will actually will post a profit. CNBC carried the same story on DB but I caught a great line in their coverage;
"Deutsche meanwhile has come away relatively unscathed from the crisis, which started with a collapse in risky U.S. home loans last year."
Now have a look at the chart of Deutsche Bank (above) and then re-read the above quote. Maybe the cheerleaders at CNBC define unscathed a little differently than you or I might.
The Deutsche Bank news is what I call pulling a Merrill Lynch/Lehman on the market ! Now you might be asking what's a Merrill Lynch/Lehman move? No, it is not a gymnastics move although it's a great guess given the Olympics are right around the corner.

If you remember John Thain CEO of Merrill Lynch announced that Merrill would NOT need to raise capital but raised $8 billion less than a week later. The Lehman move was when they posted a profit due to the write down of their outstanding public debt. Yes, as strange as it sounds, companies can calculate the depreciation of their publicly traded debt and post it as a profit. Hence my conclusion that UBS is pulling a Merrill Lynch/Lehman. We shall see if they can stick the landing! I would bet the under.

While on the subject of a profit mirage, I am reminded of how the banks have booked profits from option pay neg am mortgages at the full rate when the homeowner was paying only the minimum under the assumption it would eventually be paid because the mortgage was in good standing. Gotta love it. But don't forget the financials are bottoming here and are the buy of a generation. Absolutely comical if it all were not so tragic.

I published a post this morning outlining what 'a unit' was due to the frequency of the question being asked via email. Hopefully many found it informative. I also wanted to touch on a couple of other items some may find mundane or simple but I do so because not all of the readers of this blog are at the same level of knowledge regarding market terminology and lingo.

In my Open position section I lay out all of my positions by number of units. Next I show the cost at which they were purchased which is adjusted if I add to the position. The stop section may be the confusing part for some. The stop is the level the position will be sold if it trades at that level. A sort of automatic eject button.

Long is faily simple buy a stock at $50 sell it at $60 you have yourself a $10/share profit and you are flat, no position anymore. When long you think the stock will go up.

Short is the opposite in which we sell the stock first then buy it back later. You sell the stock at $60 and you buy it back at $50 for a $10/share profit. When you are short you think stock will go down, if it goes it you lose.

Ultrashort. Yes I am long some ultrashort position. So by definition I am long a short. These products are new and they go up in value when the item in question goes down. Kinda like a teeter-toter on the playground. As an example I am long the ultrashort financials (ticker SKF)which is a basket of bank and broker stocks. When those type of stocks are down the SKF will go up. Get it?

The ultrashorts were created, in my opinion, because traders were not allowed to short stocks in their retirement accounts (no margin) and this vehicle, sorta the illusion of being long, allows them to do this. Again I hope this clears some things up for readers.
Housekeeping notes;

I was stopped out of my single unit long of MCF at $90.05 for a loss of 4 pts. I did notice the company is shopping itself so I will stand aside though it is a textbook flag formation which if the top is taken out I probably will find myself long it once again.

I was stopped out of my 2 units long position of KOL at $53.35 for a loss of $3.35 pts.

I am adjusting my stop on NFLX to $29.43

I am adjusting my stops on SKF to 146.47 and 139.46 respectively.

Good speculating to you all and always remember that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:

Long 6 units Currencyshares Japanese Yen ticker FXY @ $88.55 stop at $91.40
Long 3 units Ultrashort Dow DXD@ $50.12 stops $62.22/60.49/58.62
Long 2 units Ultrashort Financials SKF @ $103.90 stops $146.47/139.46
Long 3 units Currencyshares Swiss Franc ticker FXF @ $97.35 stop at $93.82
Long 3 units Ultrashort ReEstate ticker SRS @ $88.95 stops $99.23/97.47/92.72
Long 1 unit US Gasoline Fund ticker UGA @ $60.35 stop at $62.54
Long 1 unit Ultrashort QQQ ticker QID @ $37.05 stop at $41.91
Long 1 unit Ultrashort S&P ticker SDS @ $57.20 stop $61.57
Long 2 units Hecla Mining ticker HL @ $8.50 stop at $7.16
Long 2 units Kinross Gold ticker KGC @ $18.93 stop at $17.56
Short 1 units Daimler AG ticker DAI @ $86.20 stop at $70.12
Short 2 units Brinker Int'al ticker EAT @ $20.07 stop at $20.68
Short 2 units Darden ticker DRI @ $36.35 stop at $35.36
Short 2 units Lehman ticker LEH @ $43.70 stop at $28.32
Short 2 units Deutsche Bank ticker DB @ $117.03 stops at $105.26/99.32
Short 1 unit of Visa ticker V @ $86.25 stop at $85.36
Short 1 unit HSBC ticker HBC @ $83.23 stop at $83.52
Short 2 units of Netflix ticker NFLX @ $30.35 stop at $29.43
Short 1 unit of IBM ticker IBM @ $122.80 stop at $127.27

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