Thursday, September 1, 2011

The 5 Most Important Stock Trading Tips You'll Ever Need To Know

Rather than write a book on the subject of trading stocks, I'd rather give you a 5-shot breakdown. Traders are busy people, no? Everyone knows my stock-picking record and ability to pick market trends way before the pack (often to incredible skepticism). Now you can get some insight as to how I know what I know.

So here we go:

1. Don't believe anything you read or hear. Rather, go right to "why is this company, government or person really saying what they're saying." Example. You're watching one of the finance channels and a guy working for one of the gazillion equity firms comes on and says, "we're heading into a double-dip recession." Reality: he or his firm may well be short the market and simply wants to create panic. To be a successful trader, you need to shed all things "polyana" from your upbringing and way of thinking. The markets aren't the place to see the glass "half-full." Understand that everyone lies. Just because the SEC is trying to monitor and enforce - companies, governments and investment dudes lie all the time. That would include not telling/withholding/omitting things to the public they just don't want anyone to know. Many companies know that, at ,the end of the day, even if they get busted - the fine will be pocket change. And of course, politicians (you know, the people who are supposed to be doing things to help us little people have a better life) lie for a living - and really couldn't care less if the someone loses his house or defaults on her car payments. Just as long as they get re-elected. Duh!

2. Mastering trading tip #1 allows you to pick stocks with "eyes wide open." However, what to choose? Easy. Listen for the "distant drum beat of the markets." What's that you say? When you're watching CNBC or Bloomberg or reading your favorite newspapers, finance writers etc., pretend you're living in the jungle- and you know you need to listen far into the night for that faint drumbeat in order to know what's really about to happen between the tribal leaders. In the financial markets, this is an equivalent example: the "herd" is short the market circa 2008. The markets are tanking. For months, all the talking-heads on the tube and the newspaper headlines are barking about financial armageddon. From September 2008 heading into January 2009 it seems like there's no end in sight. The herd is short everything, arrogantly so. Then you hear one of the big hedge fund guests being interviewed by yet another finance channel doomsayer host, leading the guest with stuff like, "Don't you think we're heading into another Great Depression?" He (or she) is the ten thousandth idiot to ask the same question. You can almost hear the Hans Zimmer-esque doom and gloom music playing in the background as the question is being asked. But, casually and softly, this hedge fund guy says, "you know, we're starting to close out our short positions." Of course, as 99% of the market participants, news pundits and average joe-Americas have bought into the Great Depression hype- they have become immune to what this hedge fund guy is really saying. The herd is now blinded by its own "pack-mentality" - and it barely pays the dude any mind. But, the smart trader is listening for that faint drumbeat in the distance, and is hearing instead, "Ah, the big traders are going to reverse course and go long this doom and gloom market." And, if this one large hedge fund trader is saying this on national TV- you can be sure there are quite a few more big kahunas doing the same thing. Which leads us to tip #3.

3. But everything in 2007/2008 - sub-prime fiasco, the market crash, the tanking economy, etc., - was real wasn't it? Wrong. Remember tip #1. Don't believe anything you hear or read. Believe only that, in the world of finance, multi-nationals and governments, the worst human behavior possible is always in play - regardless of how many people get hurt, collaterally. What was really going on in 2007/2008 was simply the ongoing global trading game in play; which controls the markets and world economies - manipulating everything that's "trade-able" for a profit. That would include the big banks, large private trading firms and government (sovereign) traders all over the world being deep in it all. This isn't "conspiracy theory." It's the way it is. And if you don't wake up from your little white picket fence way of thinking, you cannot become an effective trader. Now, if you want to know where the deep action is at all times- you will have to learn the derivatives markets inside out - and especially the credit default swap markets (CDS). The CDS markets will always be a barometer of who's about to stick it to who on the grand stage (and in general). You'll find yourself thinking, "Wow, they can't possibly be trying to do something as "f'd up as this." Oh yes, Virginia- they are. And they will. BTW- you will have to gauge your own morale compass here as well - as you are going to be making money off the terrible things large traders and governments do. Therefore, it's time for tip #4.

4. You cannot fight the big kahunas, nor the big game they play. So you may as well join them as they do whatever it is they do in the financial jungles of the world. Read their messages from the distant drum beats they play, and get in early on THEIR side- else you are eventually going to get crushed. Never fight them or believe you are going to beat them. Ride their wave until your start to hear another set of faint drums beginning to beat far off in the night- and start GETTING OUT of your previously profitable positions. Switch as the big guys switch, before the herd. Use the herd to your advantage- they're always the last to know.

5. Learn everything you can about short, mid and long term market-trigger events. The relationships between currency and commodity manipulation, Treasury yields, debt trading in general and import/export trade are incredibly important to staying engaged on a day-to-day basis. Don't just follow gold up because the world economies are in chaos. That's too simplistic. Sure you'll make money initially, but you may also get trapped by your own arrogance. Besides, you can double and triple your money in incredibly short periods of time by learning to trade like the big boys do, rather than make snail profits on gold. You need to understand and follow where the big kahunas park their big money - and why, and for how long - as part of the big game they play. And then, everything will make sense, On any given trading day you can then get in and out with confidence- and a profit.

Happy trading kids...and remember- you don't need to trade every day. Take a break from the ticker once in a while. Get some objectivity. Stay in tune with the markets, but don't sit at your computer like some degenerate gambler. Wait and watch and listen. And, when you spot that perfect trading storm heading your way - THEN you trade...

GT McDuffy

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Tuesday, March 16, 2010

NAB v Musicians Royalty Dispute: Finally, A Solution Emerges

Most people aren't aware that the National Association Of Broadcasters (NAB) has gone to war against musicians and their record companies in order to prevent performance artists (musicians and singers- even drummers!) from being paid sound recording royalties by commercial radio stations for airplay.

The gist of it is that broadcasters feel the airplay recording artists and their record labels receive = "free promotion"- and is a sufficient form of "compensation," while musical perfomers on records spun on radio stations claim they should be paid a royalty for the privilege (irregardless of promotional value)- as songwriters of the same songs embodied in the sound recordings already receive (the latter of which are called public performance royalites which ASCAP/BMI/SESAC collect from blanket licenses, then distribute to their songwriter & music publisher-members). Musicians and singers feel that if songwriters of the songs get paid, so too should they. It's an important point- and performers do have a valid claim in my opinion. Certainly, writing a great song is very difficult- and the songwriter collects royalties in relation to each recording artist that "covers" the song that is played on a valid medium (like on radio, TV). The performer would only get paid from having performed on the particular recording of the same song. And a performance on a record should deserve equal footing with writing a song- you would think (but that's a whole other article).

However, the owners of many, if not most songs' sound recordings and their associated copyrights which actually get airplay on commercial radio stations are the record companies. When an artist signs a record contract with a record label, the artist (who can be a solo artist or a band) typically signs over (in a back-handed way) the sound recording copyrights to the label. The label then pays the artist (called a "royalty artist") a piece of the sound recording royalty pie out of incoming record sales and from digital downloads in accordance with the deal points in the record contract.

So, for example, an artist might be contractually obligated to receive, say, 12% of all record sales (simplified)- but only after the record label first deducts ("recoups") monies it has "advanced" (loaned) to the artist according a set of contractual recoupment variables- before the artist ever sees a penny. Once the record company has recouped- only then will the artist begin to receive sound recording royalties. An artist on a major label (whose records receive the majority of airplay on commercial stations) can easily end up having to pay the record company back a cool million or two before actually receiving ANY sound recording royalties. Record companies take the position that, as they are advancing most or all costs of signing an artist and making and selling the artist's records (such as for promotion and advertising)- and assume all of the risk of losing money if the artist fails- the labels deserve to get paid back off the top of incoming sales. The problem is that an artist will hit "red-line positon" (the point where they are finally due sound recording royalties), only to then have the record company apply new costs to the position- creating a seemingly endless cycle whereby by the artist doesn't really ever get to see any such royalties...unless the artist sells a gazillion records or has a ton of downloads.

Therefore, one can clearly make the case in regard to this new broadcast royalty, that the record company, as owners of the sound recording copyrights, might simply find a way to lump these new royalties into the same game- and the proposed benefactors of these new broadcast royalties will end up caught in the viscious cycle of record company payout-versus-recoupment...and other tricks.

You see, according to the Bills proposed by Congress, the "fund" is paid to the sound recording copyright owners (the labels, essentially) and are THEN to be paid to non-featured musicians and vocalists. Artists on labels would be considered to be featured performers, hence the non-featured performers are actually not the artists signed to labels, yet who perform on the recordings issued by the labels. Backround singers and session musicians. Would these people not be subject to the same recoupment schemes as the artist performers and therefore get paid "from record one" (the label pays out from the first record sold, without the non-featured performer being subject to record company advances)?

Hmmm. And how many bands on labels actually use outside musicians? Certainly, a solo artist would. Yet, given the creative ways record companies have come up with over the years to warp their accounting and audit practices, or circumvent contract terms with clever trap door clauses, etc., would a non-featured performer ever see the full amount due? Why doesn't Congress clearly stipulate in its proposed Bills that the "fund" will be paid directly to independent bodies like the AF of M (American Federation of Musicians) and AFTRA (Amercian Federation Of Television and Radio Artists)- who would then disburse these royalties directly to their members, as is the case with songwriting royaties from radio play- with ASCAP or BMI as the middlemen. As long as a record companies get their hands on the money first- there is likely to be trouble ahead.

Also important is the exact definition of a "non-featured" performer. For example, would the bass player and drummer in an act who have signed a record contract (and are, therefore, royalty artists) considered to be "non-featured" per the language of the Bills proposed? Would record companies put language in their contracts whereby all performers on their sound recordings are deemed to be "non-featured" performers- except the lead vocalist? This would be language aimed directly at garnishing the lions' share of incoming broadcast royalty revenues- and would add significantly to the label's bottom line.

Anyways, the battle between broadcasters and performers has been going on now for a few years. Sirius XM Radio (SIRI), per a 2009 settlement, already pays out an internet radio royalty. However, other than that- there are few broadcasters who are willing to give in. The NAB is pulling no punches in defending such behemoths as Clear Channel Radio (CCU), Emmis Communications (EMMS) and National Public Radio- and will continue to do so until the fat lady finally sings (and is forced to get paid).

And in this corner: the RIAA (Recording Industry Association of America) represents the interests of some 1600 of our favorite record labels, including Sony Music Entertainment (SNE), Warner Music Group (WMG) and Univeral Music Group (Vivendi/VIVDY). Riding shotgun in the fight against the NAB is the musicFirst Coalition- who "represent" the interests of musical artists and performers (is there a difference?) and the like. Now, before you get all huffy and body slam the labels- you need to understand the following.

This is not the first war waged against musicians and record companies. In fact, there has been an ongoing world war waged against the creators and sellers of music by digital downloading pirates for many years now. These pirates have devastated the record industry- and have deprived musicians and songwriters of hundreds and hundreds of millions of dollars in lost "artist" and "mechanical" royalties (monies that would have been paid by record companies to their royalty artists and the songwriters from record and digital downloading sales).

As sure as you're reading this article- I guarantee that you know many of these pirates personally. They're your friends. Your brothers and sisters. Your classmates. You may have been one yourself. Right? Caught ya, didn't I.

Despite the "ah, who cares, music should be free anyways" attitude all you pirates have- you've failed to understand the gravity of your acts. You've stolen money. Period. No different than if you'd gone into a record store, grabbed a bunch of albums from the shelves and ran out of the store without paying. And if you'd have been caught- you'd have been arrested. Get my point? Sure you do...except you've come to realize that no one's adequately enforcing the laws against piracy or that the courts have not slammed down on you from the git-go. If I'd have been any judge in any file-sharing case since the beginning of this thievery- I'd have sided against the perps and thrown your sorry butts in digital piracy jail (that's a special jail which exists in my backyard- where I stick copyright thieves and make them listen, 24/7, to Yankee Doodle Dandy- as sung by Joe J.D. Dandy).

So now that we're on the same page- this is my solution to this entire broadcast royalty smackdown. Listen closely. Then, when you get all closet Republican on me and start barking about bailouts, remember the copyright jailhouse in my backyard.

The taxpayer should pay all of the broadcast royalties due performers on an annual basis. You taxpayers have stolen money from performers, songwriters and record companies (whether done intentionally or by sticking your heads in the sand as your kids looted the internet). You need to pay it back. Parents and universities (the real taxpayers) have let piracy exist in the first place. And if you and your pals had been pirates when you were in your teens- and not yet paying taxes- well you're all grown up now and you're earning a living- oh and, congratulations, you're a taxpayer. Let's just say you now owe some back taxes.

We're talking about $2-5 billion a year that the broadcasters should NOT have to pay out of pocket. Both the NAB and musicians have legitimate beefs- yet instead of these parties fighting each other- they should be demanding restitution from taxpayers. All of them. Musicians, singers and songwriters do what they do to in order to make a living- no different than an insurance underwriter, a shoe salesman, a GM factory worker or a Bank Of America CEO. People seems to think that musicians are somehow at the bottom rung of society's employment ladder- who have no values, no work ethic. Do drugs- and live out of trailer parks. They're mistaken. Music professionals and up 'n comers work as hard, if not harder, than the average person. They put in long hours every day- and without the safety net of a college degree or a rich daddy in case the "ultimate payoff" of a record deal and big sales don't pan out. There is tremendous risk involved. And to then be "rewarded" by having people steal their music is, simply put, a crime. A crime of the pocketbook. A crime of the heart and soul that music is. Where would we all be without music...don't take it for granted. Foster its creation. Which also means that musicians (even drummers) must get paid. Do the right thing.

So, in what has been a terrible 18 months of "bailouts gone wild" - a lousy few billion dollars per annum is chump change. And it's money not only well deserved- it's money the taxpayer already owes.

So exactly how will the passage of the Performance Rights Act affect both broadcasters and record company stocks (in case it's not particularly obvious? And it isn't).

The "performance tax" (as the broadcasters are calling the currently proposed royalty), would probably have little, if any, negative affect on the larger Clear Channel-esque radio corporations- and may well end up helping them. The performance tax may hurt the smaller stations and their owners, who have claimed stuff like this could "put them out of business." And of course, whenever companies go out of business, well there is less "competition"- and the larger companies can swoop in and swallow up their market shares...assuming it fits nice 'n good within the anti-trust laws of the land as applied in the real world.

The record companies may stand to benefit from adding more "sound recording" income into their coffers- why else would they be fighting so hard for the broadcasting royalty. Of course, non-featured singers and musicians are destined, in theory, to benefit greatly, except the last time I checked, record companies don't get particularly excited by helping musicians unless there's something substantially in it for them. If the money came in and then went right out the door to the performers- that would not qualify as helping the labels' financial well-being. However, if the labels found a way to get a piece of a piece, well that's a whole other ballgame. Deeming performers (other than the lead singer) to be "non-featured" and snapping up big income caught in the red-line position recoupment cycle trap would certainly be an important boost toward income streams.

And, of course, labels are always looking for more leverage in their holy quest for a greater share of digital downloading revenue streams. Apple (AAPL) - are you listening out there in iTunes land? A broadcast royalty designed to pay performers is a "win" for the record companies on the road to a future digital download dogfight that ropes Washington in on the side of the RIAA. Can you say "big digital downloading 'tax'?"

My idea of having taxpayers pay the broadcast "performance tax" for past dirty deeds is designed to help the "little guy"- both small stations and performers alike. The labels and large radio companies are going to be what they're going to be. They'll survive in some shape or form. But, competition on the airwaves (and exposure for artists on smaller stations) is a good thing. Helping performers survive so they can continue to create better music that pushes the creative boundaries- is a great thing.

The two Bills on the table in Congress are: Senate Bill S.379 and House Bill H.R.848 .

What you need to do is pick up your cellphone or (iPhone) -or grab that mouse- and click the link below (yes- even if you're on a file-sharing site downloading music files)- and call or write your representatives and demand that- not only must a Bill finally (and immediately) be passed paying the darn annual royalty- but state that you equally demand Congress comes up with the annual stipend out of taxpayer funds- wherever they exist. Sell some more bonds to the Chinese if they have to.

And that you won't take "NO" for an answer. Tell them, at very least, that taxpayers are willing to subsidize the tab- in case the entire amount isn't do-able (hey, buddy- can you spare a billion-five?).

The NAB has more important things to deal with- like the newly proposed FCC broadband spectrum plan.

That way- the next time any of you steal music and rip-off record labels and musicians (even drummers) - at least you will have already paid a bit of your debt to the piper.

Write or Email your Representative: here.

Tell 'em GT McDuffy sent you. We've mobilized before (uptick rule and mark-to-market accounting for example). Let's do this one for the music guy...

GT McDuffy

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Monday, October 19, 2009

To Heck With Fundamentals: Next Stop- DOW 11,000

As those of you who have read my finance articles already know, I was the first writer to call the current bull swing- way back in late January 2009, when the financial markets were in great peril, and it seemed that 50% of the so-called "professional" analysts were even calling for the DOW and S&P 500 to continue their slides into market oblivion. And 100% of them were certain the markets were destined to continue tanking. Newer lows. Re-test this. Re-test that. Then U-shaped recovery. Or maybe a W-shaped. Bump along the bottom. Blah. Blah. Blah.

Boy were they all wrong! And still are...

Rather than continue to blow my own horn however, or explain exactly how it is I knew the markets would rebound at that time - then play out exactly as they have done- heading straight up over the last 7 months (and will continue to do so), this article, instead, is geared toward the here and now (although I will say this: if people knew what really happened, there would, indeed, be quite a hubub, to say the least).

Many of us want to live in the moment (with an eye on the future). To this end, therefore, the markets will continue to rebound. The DOW will hit 11,000 on its next stop. The S&P 500 will hit 1250 as well.


Because it's not about the fundamentals (not yet). Again- I'm not going to get into the juicy details and sordid analysis of what tanked the markets in the first place. However, as the markets shouldn't have been down where they were in the first place, it stands to reason that they will simply head back to where they should have been in the second place.

Yes- it's easy to play the status quo game of fundamental and technical analysis. And, if I were to do so, well, of course, the markets should not be where they are now. But it's not about that at this place in time.

It's actually about one basic fact.

Traders crave "direction" in the markets. Other than the minority of die-hard short-selling fanatics out there, most investors actually yearn for a bull market in times of economic uncertainty and dire household financial realities. It's an emotional response to being American- fix what's wrong so we can all make money, take care of our families and defend our capitalistic flag, all at the same time.

In other words- bull markets feel good when economic panic has taken hold of our hearts and wallets. And bull markets feel extremely good when severe economic panic has taken hold of our hearts and bank accounts.

So, the next time you hear some financial analyst or economic egghead waffle on about the markets "re-testing the lows" or "pulling back to allow those who were late to the party get in" - forget these idiots. The markets heading up feels good. The markets will continue to head up until the the emotional panic or uncertainty finally dissipates. When we get to DOW 11k and S&P 1250- a lot the panic and uncertainty will begin to be ceremoniously replaced by greed and arrogance. Then we'll all be back to where we're used to being at. And I'll weigh back in at that time to put it all in perspective.

For now, my fellow Americans- enjoy the ride up. Get some sleep. Tell your families that everything is going to be alright.

GT McDuffy said so...

GT McDuffy

(Disclosure: author holds no positions in any of the stocks mentioned in the article above)

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Wednesday, May 20, 2009

Buy and Hold This! 5 Ultra Low- Priced Summertime Stocks

As you know, in late February 2009, as the stock market was in extreme panic mode, I put together 5 very low-priced stocks to watch for an imminent bear market rally- a rally that took hold in full force only a week later. At the time I made these calls- I was met with extreme skepticism. Turned out I was right- and then some. The stocks I chose as potential 3-baggers, well, see for yourself how they actually fared:

Beazer Homes USA (BZH)- went from 56 cents to May 5th high of $3.95 (near 7-bagger)

Russ Berrie & Co.(RUS)- went from $1.34 to a May 19th high of $3.08 (and counting)

Las Vegas Sands (LVS) - went from $2.16 to a May 5th high of $11.94 (near 6-bagger)

Bank Of America (BAC) - went from $5.31 to a May 7th high of $15.07 (3-bagger)

Libbey Inc.(LYBI.OB) - went from $1.06 to a May 12th high of $2.75 (almost a triple)

I'd say my calls were pretty good!

Now I have a few more stocks to keep an eye on for the next few months- and for the longer term as well. Buy and hold ain't dead yet. These are stocks that can easily become 3 or 4-baggers (and even more).

Jabil Circuit Inc. (JBL)- JBL just had its credit rating upgraded from Fitch to BB+ with a revised mixed/positive outlook for the company. JBL will be paying down some serious debt over the next 1-2 years. Before the crash, the stock spent much of its adult life in the $15-35/share range- and in the event of a U shaped recovery, this one should be an easy double from its current $8/share price. In the event of a sustained rally (bear market or otherwise), this in one of those stocks that really climbs- straight up- with the market. So, it could be a a 3 or 4 bagger should things fly. True- neither the consumer, nor the automotive and aerospace industries will be coming back any time soon (blah, blah, blah)- but JBL has sustained a mountain of good and bad times like a champ- and it holds its own internationally-speaking. So it's a safer play, overall.

Drinks Americas Holdings Ltd. (DKAM.OB)- This up 'n coming beverage company, in its building stages, has Kid Rock Bad Ass Beer due out by Labor Day, 2009 (check out yesterday's RollingStone interview for more info) - with promotional units looking to coincide with his upcoming summer tour, which begins in June. This beer will be huge. The Kid is a winner, so I would bank on his beer being a winner, too. It could generate very large returns for the partners involved (and therefore stock holders). Bad Ass Beer is being brewed by the Michigan Brewing Company. Drinks Americas also recently acquired Dutch vodka maker Olifant Vodka, which will be co-sponsoring this summer's Snoop Dogg tour. Of note- In summer 2007, Drinks Americas announced a partnership with Universal Music Group's Interscope/Geffen/A&M Records to release beverages from several of its artists. Somewhere in the pipeline apparently lurks a Dr. Dre cognac - called Aftermath Cognac (Aftermath Entertainment is a subsidiary of UMG) -which was originally due out to coincide with Dre's mythical, re-worked and delayed Detox LP. Meantime- Death Row Records is working on the final touches of Dre's "The Chronic Relit.” Drinks Americas has distribution around the world (and may be working on locking in a new Asian distributor)- and has recently secured a new line of credit through Premier Trade Solutions. The stock (on the OTCBB) is currently in the 13-15 cent range- way too low. Given what is on the plate- this stock could launch at any time as word gets out to investors about this off-the-radar company. Hard to say where the stock will end up in the longer term, but, certainly, it would be worth holding for a couple of years, and certainly in the near term.

Direxion Daily Financial Bull 3X Shares (FAS)- If you believe that the financials will eventually recover to even one-half of whence they came, pre-Great Recession, this is the one for you. This ETF contains some of the big bank players and is specifically geared to triply-emulate the Russell 1000 Financial Services Index. FAS is currently bouncing between the $8-12/share range, up from the $3-5/share range that preceded the early March 2009 financials bang-up. The ETF debuted in mid-November 2008 at $29.22/share and ceremoniously tanked as the bottom dropped out of the market. This sucker has mega-major daily volume (so it's essentially manipulation-proof)- and stays pretty dang true to its chosen index- unlike some of its ETF step-cousins. Since it can leap (and fall) in leaps and bounds- it has become the defacto day-trade. However- when you get tired of trying to pin-the-needle-on-the-FAS-donkey jumping between the channels, you can easily buy and hold it for the longer term- which can mean $30-50/share at some point in 2010 when the market finally pomps and stomps its way steadily higher, despite the gloom-sayers. The RFSI is currently at about 140- and it would be at about 315 in a more normal environment, which means about 6x where the stock is now (seems that FAS goes at a 2.6x/index average clip rather than 3x). And, if you don't believe the financials will recover- well, you can buy (long) its evil twin- the Direxion Daily Financial Bear 3X Shares (FAZ)- which conveniently operates the same way as FAS- only in reverse.

Image Entertainment Inc. (DISK)- I recently wrote a piece about this California-based digital/DVD distribution company. Shareholders were sent on a wild roller-coaster ride involving DISK's M&A situation with Nyx Acquisitions Inc.- which, ultimately fell apart, leaving the stock down in the 80-90 cent range. The company has received buyout offers in the $2-4/share range over the last few years- including the recent $2.75/share price offer by Nix. Yes- the economy has trounced M&A since the markets tanked- but the acquisitions environment has been improving as the markets have now, essentially, bottomed. Image has just inked a 5-year deal with Universal Music, sales are steadily improving and I would expect more buyout-news coming over the next while- bouncing this stock to the $1.50-2.00/share range. Additionally, as the overall market improves- so too will the stock prices of these kinds of companies. So this one could end up at $4-5/share a couple of years from now. Be aware that the company has an upcoming $4 million payment due to the Portside Growth and Opportunity Fund on July 30, 2009- and may have to issue equity or debt securities to raise cash in order to satisfy the obligation- said schedule and payment being subject to any re-negotiation made prior to June 30, 2009.

Stemcells Inc. (STEM)- I know, I know. A company for speculators. The stock has moved up from the lower dollar range to the upper dollar range recently, and seems to be in a holding pattern as investors try to figure out- "so where do we go from here?" My feeling is that, as the stem cell sector is in a brave new world- under the aegis of the new administration and a boat-loaded Democratic Congress- we'll have 8 years of Obama-land for which stem cell potentials to become closer to realities. This would suggest the sector- and emerging companies like Stemcells- will have very strong anticipation from the market going forward. So, as things progress from here- this stock is cheap, give or take 50 cents. Could end up at $10-12/share in 2-3 years and $4-5/share on the next stop.

All of the stocks above are speculative by nature. Do your own due diligence and come to your own conclusions.

GT McDuffy

(Disclosure: author currently holds no positions in any of the stocks mentioned in the article above)

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Saturday, May 9, 2009

Financials Party On: No Mutual Fund Left Behind


Many traders and mom 'n pop investors have been asking why the financial sector continues to rally- seemingly unabated. Many supposed "professional" traders and market strategists appear regularly on the networks and in the blogosphere- trying desperately to slow the ramp, in fact, saying anything they can that starts with Skepticism in order to initiate a pullback- so that they and their clients- you know, the Big Dog Money- can get in on the long-side lower, rather than, heaven-forbid, have to chase the herd.

It pains them greatly that thousands of day traders (big and small) from around the world have lit a fire under the proverbial arses of the financials. Indeed, it pains these Big Dogs greatly that they no longer control the markets with the same lock 'n load that they did just a few years back. This is not your Daddy's trading environment anymore. This is war between the old money and the new money. So far- the new money is shellacking the old guard- plenty.

And now the institutions, mutual and sovereign funds have to play catch up. Scratch that- now they have to somehow catch a ride on the financials rocketship that has already taken off- last seen heading to the Moon- in order not to be embarrassed as the "Big Funds Left Behind." The ones that missed the party.

This is the way it should be. We are in a brave new trading world. Sure, the funds are up to their same old tricks. They try to "manipulate-down" using every tool they have in their arsenals- just as they have in the past. You know- leaking "negative" information and opinions to the networks and press hoping they repeat them on-air and in-print. Sending talking heads out to "bash" the sector and scare the day-trader longs, even though day-traders, battle-hardened by the message board bashers, simply laugh and continue to trade "as if." They recognize that just because you're on TV bashing, doesn't make it any different than the bashers on the boards- only shinier and hitting a network audience.

The Big Dogs try to push the pre-market futures and ETF's down trying to scare day-trader longs into selling, and engender shorts into shorting. They screw at will with the options markets hoping for golden chutes (forget green shoots). Then, like clockwork, the funds come crashing into the financials mid-day for a couple of hours and buy-in long at a somewhat lower price than they would have had to, playing out any hedge funds who have dared to be swill (and there were a few lately- that is, those even left in the game), blowing-out any and all shorts, using them as kindling wood for a short-squeeze bonanza. Then toward the end of the trading day- just as long traders get wary and begin to take profits, shorts sure they've caught a top as the market recedes- look out Mama! In come the Big Dogs yet again- and once more the markets close out higher. Then, after-hours, the whole thing begins to repeat itself.

Same old game. Different day.

Well, it is a different day.

The Financials Rocketship Has Already Lifted Off

Of course, as the financials and overall market go higher and higher- every Big Dog manager who hasn't been playing gets more and more nervous. "This is supposed to be a bear-market rally! How can this be happening? Is this 1991 or 2003? What if it is? Wow! I'd better get the heck in this thing before my clients run me out of town."

Get On the Magic Bus

Gadzooks, Elroy! What's a poor big-money manager to do?!

I'll tell you what you do, clodhopper. You get on the bus and don't stop 'til I tell you to. And that would be when the S&P 500 hits 1150 and the Russell 1000 Financial Services Index hits, at least, 250. That's right. The RIFIN.x, even with the current "monster rally" in financials underway, is only at 149. In September 2008, as the market began to unload, it was in the 220-230s- so there's a lot more to go just to get back to crash-in-motion levels. And that doesn't even include where it would be if the financial sector was remotely healthy!

Then, when we hit these levels- you get to get off the bus. Have a smoke. Get back on the bus- and we drive around in circles for a while as we all figure out the next consumer-spending hoodoo spending widget.

A Nation Of Shopaholics

A nation of shopping addicts we are. So, yes- someone on this here bus will figure it out. And then we'll be off heading north along route North Bound Greed- I Mean Green Is Good soon enough.

But, what about savings? They took away our credit candy!

What's that you say? You want to save? Tell, you what little big man. We'll save when we're dead. Meantime- they can limit our credit card privileges. They can tell us to live like our great-great-grand-parents did who grew up in the Great Depression. They can FASB 157 us into a filibuster-proof Save The Whales Dem-elected Congress and White House- shoveling in all the pent-up regs, plans and budgets they've been Jonesing to drop on the nation for 8 years. They can take away our home-prices-will-rise-forever-can-I-please-Sir-have-some-more-refis. But- mark my words: someone will figure out the Spending Addicts' Next Big Fix. And they'll do it on the bus.

Meantime. enjoy the ride- Bank Of America (BAC), Citi (C), Wells Fargo (WFC), Goldman Sachs (GS), Morgan-Stanley (MS), JP Morgan (JPM), State Street (STT) XLF, UYG, especially now that big-money sector rotation is flowing out of tech, etc., into the Banks- and all that side-line money is about to come home to roost- because there's no place like home, right Papa-ARM T?

The only "pull-backs" you're going to see are those intraday "dips" or 2-day lulls that the funds use to buy in. Don't panic. Buy alongside the Big Money.

If you're still dumb enough to short financials against the institutional and big fund money inflows, or listen to the bashers who will come on the tube or prime the print- trash-talking for a major pull-back or a re-test- well, you deserve what you get (and what you've gotten). Back in January, as the market was tanking, I was the first person calling for a long bull run (yes- before everyone else did). And here we are- we have Saturn in our sites.

The Bull Run officially started on March 6, 2009 and it continued on as of Friday May, 8, 2009. It will ramp through June 30, 2009 through the close of the 2nd quarter, take a breather, then continue on.

Stress This

I know many of you are wondering what the government was up to with the "stress tests." On the one hand (and on the surface) you could argue they were attempting to restore confidence in the system and with private capital investors potentially looking to buy up bank cap raises per the new capital buffer requirements. On the other hand, the White House has gone out of its way to vilify Wall Street's private investors- who no longer trust getting in bed with the government. And of course, to this end- the banks themselves are already chomping at the bit to repay TARP to get out of bed with those who wish to control them. An argument can be made that the White House is merely talking tough for the sake of the taxpayer constituents on Main Street, hoping Wall Street won't take it too seriously. Although, one can also say the government is hellbent on taking control of the banks- and used the "stress-tests" and the vilification treatment to ultimately get what they want.

Stupid Is As Stupid Does

I no longer worry one way or the other about the government's objectives in all this. The stupidity-contradiction factor is no longer worth the stress of trying to figure things out, and is two-fold. First-off: the government forced higher capital buffers on the very institutions they claim need to stop hording cash, lend it out and loosen up credit. Now the banks will horde their cash for cap reserves instead- and continue fighting with the government tooth and nail on the matter. Secondly: the government and Fed has claimed the economy is going to recover by the end of 2009 and certainly in 2010- yet their "stress-tests" are directed at a "what if" scenario whereby things do not improve, and in fact, get pretty darn worse- which means they're allowing for the possibility that their forecasts are entirely wrong.

Party on dudes.

Party on GT...

GT McDuffy

(Disclosure: author holds no positions in any of the stocks mentioned in the article above)

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Sunday, April 5, 2009

Financials Have Run Too Hard and Fast- Tread With Caution

No doubt that the recent FASB decision to relax certain fair-value/mark-to-market provisions, along with the excitement of a short-seller uptick rule reinstatement smackdown, coupled with a few of our major banks having said they were "profitable" for the first two months of the first quarter 2009- and with some bright spots signaling a macro-economic bottoming-out underway, all have contributed to the remarkable punch up of the stock market since early March, led by financials.

Mutual funds have spent the last couple of weeks toying with the day-trading shorts (and perhaps a few brave hedge-funds stragglers). Just when shorts are certain they've picked a top, the behemoth mutual fund monsters let the financials drop, then blow the clueless shorts out with a time-tested short-squeezed mission statement: do not short on our turf.

Moreover, the fixed-income markets have shown an ever-increasing resilience- and, in fact, some real strength. This always bodes well for the long bull haul.

Yet, there are some reality checks here. First-off, one of things FASB did NOT do, was go retroactive on legacy bad assets. This is a huge letdown (although to have been expected), and the mods they did approve will therefore not have the real punch we mark-to-market mod proponents had wished for. And, of course, although the changes made by FASB will begrudgingly facilitate establishing a market for certain bad assets, if at a higher price than the PPIF's potential private investors might have liked, there will be many bad or depressed assets that will now not be offered up for sale, and kept in our large-bank black-hole boxes instead. On the other hand, the PPIF is such a sucker's bet for American taxpayers, why in the world wouldn't banks unload everything they've got while they've got Uncle Sam playing the shill.

There is an estimated $20-30 trillion in bad assets held by US and Europeans banks. Using a trillion dollars alongside some private investment money to wipe these bad assets of the books is akin to using a fly-swatter to whack away the flies on a dying elephant. And, then of course, we aren't even talking about the CDS market that expects payouts rain or shine. Think of these as the hyenas and vultures waiting to swoop down on our giant toxic elephant once he dies and his carcass is up for grabs.

Rest-assured, no one in the know in government or on the inside of the world's big banks and institutions want to talk about the black-box. Suffice to say, they'd rather just leave it at "too big to fail"- and, more than anything else, don't want any outsiders poking their noses inside the black-box- else that would mean true taxpayer outrage (which is why, when I hear all this talk about "transparency for investors," I really do have to chuckle, sadly).

Then again, as the taxpayers are being led to believe they can buy pieces of the dying elephant as part of the PPIF- then bet on more of where that came from- until the entire elephant is in the Smithsonian and no longer in the banking zoo. The shadow banking system is dead. Long live the banks.

Back on the ranch- FASB-mod inclusive/legacy assets excluded, first quarter balance sheets for the big banks will, therefore, be improved only marginally. How these assets are treated by the bank regulators as to cap reserves is, to me, a black-hole in itself. The stress-test results, about to be completed, will not be made public- leaving investors to guess wildly about the specifics- and even more wildly about the generalities- except that certain banks will be required to hold more reserves.

Moreover, the operating "profitability" of the big banks are cosmetically TARP-buttressed- fortified by the old sporting event called The Musical Chair Swap Meet between our institutions.

Rather, credit asset write-downs will continue to be horrific. Credit card defaults will continue to rise, especially as unemployment rises. Performing loans continue to deteriorate. Commercial real-estate continues to tank. Private mortgage insurers are going to continue to get hit from defaults and other impairments that have not yet shown up on their books. Their access to government program "bailout" relief will also be limited, if at all- and those dealing directly with Fannie Mae could face suspension in light of ongoing credit agency downgrade triggers.

So investors in financials, who have been basically day-trading stocks on daily news and hopes- are now getting suspicious of a sustained rise from here, although mom and pop investors out in the burbs are now wanting to get in while they hear that the gettin' is good. Institutions (always the last to know) are coming in just because they can (and this is big money).

But, my feeling is that, although there will be more upside to come over the next few months- there may now be a pause- even some real downside to financials. Mutual funds are going to buy lower and lower- as will institutions- as they realize they can do so. They're slow, but not stupid. And yes- swaps are raging. Puts on some of our large banks are on fire- and growing. Bets on a tank have been placed.

So, as fantastic as the recent run-up has been, it's a bit overdone for the time-being. Some profit-taking is in the cards for smart traders. And then simply wait April out. See what's what. Yes- there are those traders who refuse to take a break from the craps tables- but these are the suckers that the house looks to clean out and hand out free rooms as consolation prizes toward that trip to the casino next year.

Remember, if you've really been listening to Bernanke, Bair and Geithner (sounds like a law firm), you'll notice that the financial heavyweights with their fingers on the puppet-strings in Washington have NOT dismissed the notion that some institutions may need to be wound down if necessary. This is a polite way of saying, "We won't let anyone fail in one fell swoop like Lehman Bros, but that doesn't mean certain large banks won't fail slowly, like AIG (AIG)- pumped up with taxpayer money as their assets are slowly sold off, leaving vastly-smaller leaner, meaner banking entities."

As to which large banks would be involved to this extent, I am not going to speculate. Wells-Fargo (WFC)? Bank Of America (BAC)? Citigroup (C)? Who knows. But, any announcements or leaks forthcoming that certain big banks already TARPED could require more capital injections in the event of a downturn would be a complete downer for the pumped up financial longs. And the financials could turn south in violent fashion. Actually, I will speculate: I like Bank Of America's chances of staying strong and proud- it only makes sense- after all, they handle, in some capacity, pretty much everyone in this country. Now that's too big to fail! I like Ken Lewis. He may be part of the old guard, but he don't take no mess from Obama. In fact, if they move in on Bank Of America's boardroom, I'm moving to Thailand- because that'll be the final nail in the free-market capitalist coffin.

The results of the stress-tests are apparently going to be completed by the end of April. And our large banks are announcing first-quarter earnings, for the most part, beginning the week of April 13, 2009 through the week following. So, I look at any more ramp up in financials as longs trying to milk some quick profits off of funds and burb-people who haven't read this article, before the bottom falls out.

I was the first to initiate this whole market-to-market suspension/modification craze. I was the first to initiate this whole restoration of the uptick rule craze (and to take on short-selling manipulation relating to changing the price test). I have engendered an army of investors to write their Congressional Representatives in regard to mark-to-market and the uptick rule. I have people from certain networks reading my articles and then expounding about them on-air within hours (God Bless Them). And I have many in power in D.C reading my articles and then using them to hit home-runs in their neck of the woods.

I was also the first, back in January, to call a bottom, and for a long bull run to start on Valentine's Day in February (although I was 3 weeks early)- which was scoffed at.

Now I'm telling you all to tread carefully. I hope I am wrong. I hope this market keeps going until it hits 16000.

Meantime, I'll leave you all with a quote from everyone's favorite farmer- Thomas Jefferson:

"Government big enough to supply everything you need is big enough to take everything you have..."

Don't believe me? Ask General Motors (GM), the UAW, the bond-holders and the good hard-working citizens of Michigan.

GT McDuffy

(Disclosure: author holds no positions in any of the stocks mentioned in the article above)

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Saturday, March 28, 2009

The Economy's New Clothes

No- it's not another B-rated fable film noir. Or maybe it is. Watching this whole economic crisis play itself out has certainly been a total schlock-fest.

Surely, those financial marketeers who have been watching the plot unfold on their giant Best Buy (BBY) LCD TV's over the last 8 months must be wondering why those in charge of fixing this economic thing haven't yet simply granted capital forbearance to the big banks- and be done with this total financial market fiasco.

It's Logical. It's Free of charge. And, this Economic Nightmare would be over and done with. Make the banks keep necessary capital reserves- but only when it's necessary. This will instantly free up capital for loans and, yes, will immediately restore liquidity to the markets. Not for re-engendering perverse risk, but for healthy entrepreneurship and day-to-day corporate flow. Couldn't hurt the growing ranks of the unemployed either, of course.

Sure, if a bank anticipates credit losses, it should have to anticipate keeping the necessary capital on hand- but only when the credit losses actually come in. And, at the point where these credit losses actually come in and there isn't enough cash on hand- then the institution can be TARPED if required. It's not like the powers that be don't know where to wire the money in a heartbeat- as it's needed. And, it's not like the regulators don't have the road maps to the Big Boy Banks in case anyone's expecting a lack of fair play or excessive risk-taking in the making. Actually, no large bank is going to go leverage-crazy with the whole world watching. Those days are over.

Furthermore, why in the world are these banks being forced to keep capital reserves for non-credit losses: for depressed, distressed or, gadzooks, "toxic" assets that were meant to be held to maturity or sold at some future point in time if and when the market for them is much better. And, the assumption is, that for a whole lot of assets currently in the dumps- it will get better. Obviously.

If a bank isn't planning on taking the write-down, why should it be strangled by that decision because of a bunch of accountants at FASB?

Because marking assets to market was intended to create "transparency" for investors? You mean the same investors who day-trade on the markets as the "gang that can't shoot straight" - who don't care one iota about transparency- who are only looking for a quick trade based on herd mentality? In fact, the mentality created specifically by the financial media- and no one else.

Then there are those fund investors, big and small, who manipulate the markets for a living. Are these the people for which "transparency" was designed? The "window-dressing" close of the quarter truth-tellers, the rumor exploiters and the bid-pinners? The swap sharks? Yeah, right.

And, who's left in the investor population after funds and day-traders? Retail investors? So, what percentage of these investors actually know how to read a balance sheet? Very few, indeed. Most retail investors ask their brokers to recommend stocks. Inevitably, brokers pick stocks that are doing well as "sector plays" and based on what other brokers are doing- which are largely connected to what "analysts" are supposedly following and on what our spanky clean credit rating agencies are watch-dogging. But, when's the last time "transparency" played a legitimate role in relation to anyone rotating sectors or making a due diligent and clean upgrade or downgrade in between making a buck on the boys in the back.


Oh, and let's not forget the 401k set of investors- the ones who blindly pile their retirement money into the "blue chips" and the well-known large caps. To them I say: mark this!

So, what have we been doing here exactly with all this bank and FASB nonsense- except giving shorts a blank check to beat down financials- destroying the very investors and institutions that FASB and the SEC claimed it was trying to protect. Nothing against the SEC- they do what they can with what limited funding and manpower they have to deal with. But, enough is enough.

After two and a half years of FAS 157 destroying massive amounts of capital wealth- FASB is now finally been forced to kick out the M2M on distressed assets, yet exactly at the same time as Geithner's toxic asset PPIF plan rolls into town, which is, bizarrely, all about having sellers sell at the lower market mark rather than at the higher maturity or model price?

Can it get any more ludicrous than this?

And, what about the part of current M2M being exploited by buyers of distressed assets- who take advantage of the spread between the M2M price and the price these assets can actually fetch in the real world to turn a profit. So these buyers have been getting a free mark-to-market lunch while the sellers (uh, the banks) get strangled on the sale- on top of having to maintain capital stuck on the market mark? Who's side are we on- the private buyers of debt, or the sellers we are supposed to be easing up on in order to have them stop hording cash and lend in out instead?


Then, of course, you now have the large banks going through "stress tests" to determine how much capital they should hold in the event of an even greater disaster than the one we've been in?


If we're about to separate credit losses from illiquid asset "losses" with mods to M2M and encouraging increased regulator discretion (which they already had a long time ago, but didn't use), then, on the one hand, the banks would need more capital, but on the other hand they'd need less capital!? Who the heck is running this crazy ship! The regulators are going to need straight jackets and a trip to the white room.

I'm heating up. Hold onto your shorts.

I keep hearing about how the "taxpayers" are angry about Citigroup (C), Bank Of America (BAC) and General Motors (GM) bailouts and AIG (AIG) bonuses- that they're so incredibly livid out there on "Main Street" that bankers and highly-paid corporate execs better watch out. Take no bonuses- but better not jump ship for better-paying pastures. Work for the cause.

But, you see, the "taxpayers" are mostly rich and upper income folks and businesses. And you know, they're not angry! At least, not at each other- only at those who keep pecking away at their rightful keep.

That leaves the middle class and low income folks (who pay very little of the actual tax in this country). The middle class burb people aren't angry about bailouts and bonuses- at least they shouldn't be, they barely pay anything into the economy! They just want to get back to shopping and left alone to watch basketball and football on the tube. They only thing they should be angry at are all the jobs which have been sent to other countries (which was a problem that long preceded the mess we're in, and certainly didn't cause it). But, bailouts and bonuses?

Which leaves the poor folks- who pay nothing in the way of taxes and, in fact, receive most of their benefits on the backs of the richer set. So are you telling me that it is these "taxpayers" who are angry at the same Wall Streeters and corporate executives who already pay for them to subsist in the first place- as the poor and lower income set relentlessly drain our resources? Can you say Nixonian economic angst ten times fast?

Well, then, if it's really just the poor class and the jealous middle class "have-nots" who are so "enraged"- and they shouldn't be- then maybe they're being manipulated into thinking they're supposed to be, so that certain laws and regulations can get rushed through while they aren't paying attention, for the benefit of those in Washington and, in the end, those on Wall Street.

I've had it with all this garbage.

This whole "economic crisis" came about in the first place because there were those in charge who absolutely foresaw the ramifications of FASB 157 in a down market. The risk to capital. The credit agency downgrades following the downward spiral. The repeal of the uptick rule, when, in fact, there were those who tried to get a modernized version restored a long time ago- but were shot down. And on and on and on...

When does it end! When do the people of this nation take the blinders off and start effecting change they deserve themselves- instead of having it handed to them like heads on a silver (or rusted copper) platter!

Wake up people! Wake up!

People are getting rich- and are about to get a whole lot richer on the backs of this crisis. You are losing your jobs and living in tent cities because you aren't seeing things for what they really are. Because you are being kept blind and stupid.

Use a little logic. It will all make perfect sense.

Then, for the love of God, get off your collective butts. Stop with the class warfare- and see what you can all do as a united class.

The United Class Of A Truly Enlightened America.

Capital forbearance for our banks- the McDuffy Way. Write or Email your Congressional Representatives. Our write-in campaigns effected change on mark-to-market and the uptick rule. We can do this one, too. The last piece of the puzzle.

It's now or never. It's in your hands. It's got to change.

GT McDuffy

(Disclosure: author holds no positions in any of the stocks mentioned in the article above)

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Sunday, March 22, 2009

March Madness Comes To Washington

College hoops. Washington goofs. Springtime is here again.

If you think President Obama loves basketball- well, he must really love what March Madness has brought to our nation's Capitol. So, just as the Prez has handicapped the tournament- I thought I would offer all you crazy Americans huffing and puffing up the new class warfare a bit of the McDuffy Madness myself.

And, here it is:

The McDuffy Manifesto For All Good And Angry Main Street Americans

Rather than always blindly channeling your anger at those whom the media tells you to, understand that Main Street Media nearly always gets it wrong- and, instead, fosters their "pseudo-journalistic" intent strictly for the purpose of getting ratings and advertising income. Rarely does the media do anything which is best for Main Street.

Learn to focus your anger on the real culprits- not just on Wall Street and in Washington D.C., but, especially, on your fellow taxpayers. Understand that, although it is all three of these "groups" who are responsible for the current economic crisis, you only have to look at yourself and at your neighbors- the real culprits behind the mess we're in. It is you and your neighbors who decided to live on credit cards and mortgage "re-fi's." This is a Main Street addiction that is simply fed by Wall Street. You all just assumed the economy would continue to be great- and your addictions would be sustained. Now, you're looking to blame the dealers. Blame yourselves.

It is your own low-income fellow taxpayers who took out subprime mortgages knowing they would not really have the ability to pay them off once their monthly payments ballooned. These taxpayers were free of will upon signing their mortgage agreements- no one forced them to do it- and few were actually misled into signing the agreements- contrary to what you have heard on TV. Most subprime mortage folks believed that, worst case scenario, the increasing equity in their houses would backstop any failure to pay, as long as the housing market kept going up. Yet, at the same time subprime and the economy was raging, everyone on Main Street suspected that there was something wrong- that there was a bubble getting ready to burst. There were quite a few people, in fact, who were consistently warning of the housing bubble. Yet, nearly every taxpayer swept the warnings and his or her own intuitions under the rug, hoping things would just keep going as they were.

It's far too easy to blame the mortgage brokers for the mess, or those on Wall Street firms who took advantage of these "subprime" circumstances to make millions. Likewise, politicians did nothing to stand in the way, even though many of them knew what was happening. So who do you blame? Blame everyone and blame yourselves- and now move on to fix the problem. Which means fixing yourselves and your own lifestyles. Do not get distracted by the media's profit and power agendas designed to stir up class warfare for the sake of their ratings and influence- for it will be at your continued demise. Wall Street is greedy, but they adjust their greed in ways that ultimately fix things for Main Street- so, if you all want to go back to shopping and building wealth yourselves, Wall Street is a huge part of that process. When things were going well for the majority of you on Main Street (yes- even all you middle-class people), I didn't hear you complaining. And. I certainly didn't hear you defending the lower-income folks.

The AIG (AIG) situation is not what you think it is. The key executives and traders of AIG finanicial instruments who made all the bad bets and strangled the global financial system are no longer with AIG- so when those in the media and politicians manipulate you the taxpayer into going after those currently at AIG- your anger is completely misplaced. The current people at AIG are actually there to help fix things. Where are the original traders? Who knows. Who cares. Move on.

Which means that moving on is telling your politicians to stop using you to get bills passed while your anger is being manipulated for their purposes- purposes which are actually not in your best interests. Remember- your best interests are to let Wall Street do what they do best. And to improve your own status in life without using up useless energy on New York and D.C. If you want to strengthen your middle class existence, then do your middle-class thing. Work hard. Work for your family. Work for your neighborhood. Improve your skills. Improve your dedication to work. If you were to ask Kobe Bryant how to fix the financial crisis, he would tell you to focus on your own game and work so hard at it, you'll realize you need to work even harder on it. The work never stops. There is always room for improvement in your game.

Forget the politicians. Forget Wall Street. Forget the big banking and investment institutions. Citigroup (C), Bank Of America (BAC), JP Morgan Chase (JPM), Wells Fargo (WFC), Goldman Sachs (GS) and Morgan Stanley (MS) will go on in some form. Bigger. Smaller. Does it really matter? Think of them like the team owners and front offices or the NBA executives who work the money and set the rules. It's going to be what it's going to be. At the end of the day- you have yourself and your team mates (your neighbors). Just as long as you don't give the owners enough rope to hang themselves and ruin the game.

So now that you realize where to channel your anger- forget it.

It's time to back off, mellow out- and get back on your own benches. Let the refs hand out some technical or flagrant fouls- and throw some offenders out of the building. Let the league hand out the necessary suspensions- but, just don't let them change the rules of the game. We like the game.

Don't give the politicians more than they deserve- they'll do what you tell them to do. And whatever you not listen to anything that Main Street Media has to say. They're worse than clueless. They have no problem bringing down this great country in the name of advancing their own agendas- no matter what the cost to the taxpayer. The days of Woodward and Bernstein are gone forever. All that is left is a slew of useless anchors, talking heads, reporters, writers and media executives looking to make a buck by talking trash about the world at large, and stirring up us little guys so we actually stay tuned and pay attention to the garbage on their stations (and buy the products they advertise).

Let's get back to winning a championship- and forget all this nonsense...

GT McDuffy

(Disclosure: author holds no positions in any of the stocks mentioned in the article above)

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Saturday, March 14, 2009

Your Next Trades for Mark-To-Market, The Modernized Uptick Rule, The PPIF and TALF

Everyone following the financial markets recently saw major pops across the spectrum. Rumors about FAS 157/mark-to-market/fair value accounting modifications, the reinstatement of the uptick rule, the coming public/private partnership relating to the buying up of distressed assets, along with some of our largest banks announcing they had operating profits over the first two quarters of 2009 made the stock market run like the wind.

Now, rumor is turning into reality. More light has been shed relating to FASB 157 and the uptick rule- scaring the pants off the shorts. Indeed, shorts have been covering their positions near and far. Yet, with each continuing ramp up of the market, they continue to arrogantly believe that the bear market rally is nothing but a dead cat bounce- and are trying desperately to catch a top to short, only to realize they miscalculated- and have to cave in and cover-buy, each with successive short-squeeze fuel. Hence the market has been heading higher and higher. The short-seller vernacular has, indeed, changed from a "single-day" short squeeze to a "one week" bear-market rally- and as things continue to ramp up, this, too, will change to a "few week" bear-market rally. And then some.

You see- the estimated $7-10 trillion of Big Dog longs out there in the world will finally decide to come back in the market for the long haul. This has happened many times before. What starts out as a dead cat bounce catches fire like a twig in the forest, and turns into a raging bull-market. I've said it before- and I'll say it again. The long becomes the new short- and the day-trading clueless herd of shorts get overwhelmed and booted out of the game. Many short-selling funds have closed their positions and are now going long.

Here's more fuel for the fire coming this week:

One day after being confronted by an angry, impatient unified and bipartisan House Financial Services Committee- FASB, the SEC and the OCC agreed to finally move on mark-to-market and fair value modifications after 6 months of endless studies, evaluations and delays- else Congress would do it for them. To this end, FASB announced Friday that they were meeting Monday, March 16, 2009 (8am) to discuss issuing guidance clarifying M2M as applied to assets in illiquid markets A major step in the right direction- and just one of the important modifications coming. The HFSC wants all FAS 157 modification plans in place by early April- and in time for the upcoming April 2, 2009 G20 meeting. FASB will be voting on the matters discussed at the Monday meeting by then- which, in summary, would put discretion in the hands of the company to determine if a market for an asset is liquid and whether a transaction is distressed. FASB has put its M2M proposals up for public comment with the aim being to enable companies to use the mods for their 1st quarter 2009 earning reports.

Also on Monday, TALF will be kicking in upwards of $10 billion towards unfreezing the secondary credit market. And, the Obama administration will be seeing to shelling out stimulus bill cash toward reducing small-business lending fees. The government would also increase guarantees on some SBA loans to 90%. Officially the TALF will be launched to the world on Thursday (March 19, 2009), designed to unfreeze the consumer lending market.

On Thursday March 19, 2009 (10:30a), the powerful Senate Committee on Banking, Housing and Urban Affairs, led by Chairman, Senator Christopher Dodd (D-Conn), will also hold a hearing- Modernizing Bank Supervision and Regulation- which is another positive for the financials.

And, this week, big rumor has it that the Treasury may finally begin to roll out initial details of the much-anticipated PPIF (the Public Private Investment Fund). The markets are highly tuned for specifics relating to this plan that is designed to enable private investors to buy up distressed assets with the government acting as a backstop- providing low-cost funding and insurance- with potential returns for both the private side and the taxpayer. A huge bullish catalyst for the markets as the plan steps up in March.

Also, SEC Chairwoman, Mary Schapiro, said last week that the SEC is aiming to reinstate the uptick rule- with a proposal due in April. The SEC is meeting on April 8, 2009 to discuss various "price-test" options and alternatives related to short-selling (stay tuned for developments relating to these "alternatives"). Market pundits who think this is going to be the same old uptick rule, one which might be ineffective in today's fast-trading high volume markets, will be in for quite a shock when the modernized uptick rule with a new price test is finally rolled out. Much to Schapiro's credit- the new version (or alternative) will be quite effective, indeed. Equally important in any ultimate decision made by the SEC will be to what extent it is applied to market-makers in both the equity and options markets.

There have been those who have said that if the SEC were truly interested in reinstating the uptick rule, they would do it immediately- however, it will take a bit of time, technologically-speaking, to implement any modernized or alternative version (plus, the SEC has to go through the short "public commentary period"- which could put a final rule in place by the end of the 2nd quarter 2009).

Democratic Senator Ted Kaufman (D-Delaware) and Senator Johnny Isakson (R-Georgia) have also just introduced a bill that would order the SEC to reinstate the uptick rule within 60 days- with provisions that would prevent short-sellers in financial stocks from placing a short-sale order lower than 5c above the last transaction price- and would give priority to any longs selling shares. Rep Harold Ackerman (D-NY) has already introduced a bill in the House to restore the uptick rule.

To summarize "what's been what" with M2M modifications thus far:

Back in early February 2009, Chairman of the House Financial Services Committee, Rep Barney Frank (D-Mass), said, "One of the things I think we should be exploring is the extent to which you can retain mark-to-market but make the consequences discretionary with the regulators rather than automatic." He has also, more recently, stated that there will be "substantial changes" made to mark-to-market.

There are several elements of the current "M2M" model which need to be resolved, rather than using the "one size fits all" rules under FASB 157: marking certain assets at maturity, marking assets trading in illiquid/liquid markets, marking assets in regard to a company's model and marking assets not easily "discovered," etc - to which, if modified/resolved, would help companies become truly transparent and potentially show many companies to be stronger, less underwater and in certain cases, no longer insolvent. Particularly important are issues regarding institutions that have capital requirements (ratios) tied to marks on certain assets.

In the words of Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, he wants "to find a way – within the existing independent standard-setting structure – to still provide investors with the information needed to make effective decisions without continuing to impose undue burdens on financial institutions."

Furthermore, while the government is trying to figure it all out, including the public/private partnership, some have also recommended suspending M2M altogether.

There is nothing wrong with M2M bringing transparency to investors as to a company's financial position- but, true transparency has proved to be quite complicated (and unfair in many cases) in the real world.

Section 132 of the Emergency Economic Stabilization Act of 2008 "Restates the Securities and Exchange Commission’s authority to suspend the application of Statement Number 157 of the Financial Accounting Standards Board if the SEC determines that it is in the public interest and protects investors."

The powerful Paul Volcker, former Fed Chairman, and now one of Obama's key advisors, is a big advocate for modifications of the current M2M. Back in the early 80's, Mr. Volcker was responsible for bringing the United States out of a terrible financial crisis.

Volcker is also Chairman of the highly influential Group of 30. Another member is the G-30 is none other than current Treasury Secretary- Tim Geithner. In fact, if President Obama were thinking of replacing current Fed Chairman Ben Bernanke with anyone who has history in his favor- that would be Volcker. Without a doubt, Geithner and Volcker would be a formative combination in resolving the current market crisis.

The G-30 is pro-revisiting M2M and making changes- which will be major market movers..

Section 12 of the G-30's recommendations:

Fair Value Accounting
Recommendation 12:

a. Fair value accounting principles and standards should be reevaluated with a view to developing more realistic guidelines for dealing with less liquid instruments and distressed markets.
b. The tension between the business purpose served by regulated financial institutions that intermediate credit and liquidity risk and the interests of investors and creditors should be resolved by development of principles-based standards that better reflect the business model of these institutions, apply appropriate rigor to valuation and evaluation of intent, and require improved disclosure and transparency. These standards should also be reviewed by, and coordinated with, prudential regulators to ensure application in a fashion consistent with safe and sound operation of such institutions.
c. Accounting principles should also be made more flexible in regard to the prudential need for regulated institutions to maintain adequate credit loss reserves sufficient to cover expected losses across their portfolios over the life of assets in those portfolios. There should be full transparency of the manner in which reserves are determined and allocated.

Here is an excerpt from the:

FEBRUARY 26, 2009

"3. As the financial crisis evolved, weaknesses in
accounting, credit rating agencies and other market
practices were exposed.

Fair value accounting rules were inconsistently
applied and have contributed to downward spiraling
valuations in illiquid markets. Credit rating agencies
failed to analyze collective debt obligations with
sufficient vigor. Clearance, settlement and collateral
arrangements for obscure derivative contracts created
uncertainty and need clarification..."

Warren Buffett has told CNBC that "mark-to-market accounting should be retained, but regulators shouldn't use it so much to require institutions to increase their reserves." This is in keeping with one of the primary modifications that can (and should) be made relating to M2M- and would result in relieving substantial pressure on the banking system- a major positive for financial stocks.

Buffett also thinks that debt currently valued at mark-to-market is a "good buy"- which bodes well for the forthcoming public/private partnership (PPIF) being put in place, assuming Buffett's sentiment echoes that of other private investors looking to buy up the "bad" assets (although pricing these assets is as much a function of whatever investors will actually want to pay for them as much as what they're marked to on an accounting basis. Currently, buyers turn (or would turn) a profit by taking advantage of the spread caused by M2M accounting rules and realities).

All indications presently show that there are many private investors who are willing to buy up debt (and are doing so), especially assets that are of a "less-toxic" nature, and, obviously, at as low a price as possible- whereas the holders of these assets would want to sell them as high as possible. Many potential large investors are jockeying for the most favorable terms and regs that would best support their agendas.

The most recent mark-to-market stock market catalyst was the March 12, 2009 House Financial Services Committee hearing spotlighting M2M and fair value accounting under FASB 157. In this hearing you heard testimony relating to the above modifications.

Back to normal mortals.

On certain finance television channels, there are a couple of TV anchors (with very limited or no economic cred) who have said that suspending or modifying M2M won't "do anything"- which, of course, is utterly ridiculous, so take them with a grain of salt. In fact, at very least, there will definitely be some major "tweaks" made- which will be game changers in. Especially in regard to banks' capital requirements and relating to distressed assets traded in liquid/illiquid markets- all of which will allow to investors to have more far more accurate information in evaluating companies and relieve substantial pressure on banks. Fed Chairman Ben Bernanke has recommended re-visiting these areas.

Investors should focus their attention on what Frank, Bernanke, Geithner, Volcker and Buffett have all said in regard to the value of making effective M2M modifications- rather than on what these certain clueless TV anchors say. Furthermore- one of these anchors keeps harping that the government doesn't have a "plan" as to what to do with toxic/distressed assets- which is also untrue- as the government has said they have the public/private partnership under way with the idea of providing low-cost loans to stimulate the buying up of these assets on the private side. Unfortunately, TV anchors and regulars have more "TV time" in which to spout a lot of misinformed nonsense. Most investors, however, have figured out who to trust and who not to trust.

So, how should longs and shorts continue to play the constant stream of mark-to-market, uptick rule, PPIF and TALF announcements, updates and meetings seemingly coming every day- that will continue to affect the markets over the next 4-6 weeks? As I've said before- it's probably not a good idea to be short overnight or over the weekend. And, longs would want to get in before after-hours closes, leading into the next trading day.

Longs definitely don't want to get caught chasing financials or other stock sectors as the markets head up- as I've said many times before- not with all of that Big Money sitting impatiently in Treasuries and Money-Market funds collecting pennies- all suddenly piling into the equity markets for the long bull run. Bank stocks (C, MS, JPM, BAC, GS) and ETFs (XLF, UYG) are but a few of the beaten-down stocks that will continue to run, leading the charge. Insurance stocks like Genworth Financial (GNW) especially, and Prudential Financial (PRU) are so oversold it's mind-boggling. Genworth is particularly interesting because it doesn't insure CDO's- and, therefore stands to benefit most with a broad market ramp up where wealth insurance is finally going in the right (bullish) direction.

If you are long on financials- hold your positions (and ride out any dips). Shorts- don't get caught short-squeezed overnight.

Remember- bear market rallies can suddenly turn into bull market rallies in the blink of an eye. As short-covering continues, this will have the inadvertent effect of pulling more and more of that Big Money in- before things run off without them. Indeed, last week's rally included large institutional investors (pension, mutual and insurance funds) finally beginning to come back into the stock market, according to Stuart Frankel & Co. president and NYSE floor-maven, Jeffrey Frankel.

Can you say- "No bull left behind?"

GT McDuffy

(Disclosure: author holds no positions in any of the stocks mentioned in the article above)

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Sunday, March 8, 2009

Obama Made A Stock Call- Now He's On The Hook

We all heard him say it. USA Corp stock analyst B.H. Obama called for American stocks to outperform. Then again, he mixed up some terms in his statement. He probably meant "price-to-earnings" ratio, or something like that. But, hey- who cares! He's the one with the insider info. Insider info made public rules. No?

I guess, given the stock slang slip up, he's a newbie analyst at the company. But he'll learn. Newbie's have a lot to prove. And one thing is for sure- no analyst wants to make a bad call and be laughed out of town. Especially when billions of people around the world hear you make it. That goes for newbie analysts even more so. 'Cause you'd get fired if you're wrong, what with so many people hanging on your every word. Sort of like hanging on every word Meredith Whitney says about banks, only bigger in scope- and in the other direction.

I mean, Cramer makes a lot of calls on the tube. Meredith makes a lot of calls- and, she got some things so right, heck- she went and started her own firm.

Obama made a single call. But it rated a 2.9 for difficulty. So, everyone wants to see if he lands the perfect dive or if he hits his head on the board. Yuck!

Main Street- both taxpayers and investors (aren't they the same thing?)- heard it. And they're now betting for or against the Prez. He put it to them good: "Bet on Obama because I am Obama, and you just wish you were me"

Main Street fired back, "Uh, will that be a 401k straddle or a day trade close of market cover-buy?" Wait a second. That's Wall Street lingo...Okay. Try again, "We're heading to the Mall to pick up Susan, but, I'll call my broker once I open my mail that's been under my bed for 6 months. Have you seen my Hummer keys?"

Odds makers in Vegas lay odds at 3:1 Obama's correct. Then again, odds makers in Vegas are pretty much the only people left in Vegas, after D.C. law makers scared everyone out of town.

So how can you trade the Obama outperform rating? Simple: don't bet against it. Else he may socialize you. That means, for every trade you make on the market, he'll tax you .25% trader tax. Ye-haw. Now that's entertainment.

But, seriously, if you are trying to find a bottom, and wish to jump in, then drain the pool and take the plunge, You don't have to do a 2.9 DOD- just do a belly flop, and never mind the splat.

You gotta love it though. I mean, here we have the President of the United States Of What Was America providing a call based on insider knowledge- and the guy didn't even have to file an SEC form! Not only that- he's got no "safe harbor" worries because you can't sue the guy. And the SEC's new chief-ess, Mary Schapiro, owes him a favor or two for putting her at the helm.

So Wall Streeters and Main Streeters can take Mr. Obama's insider tip to the bank. Will that be a bailout bank- or my local credit union, then? Thank you very much, Sir. Never mind the no-frills, Sir.

Do you think Obama told Tim Geithner not to screw up the plan now that the world is now watching? Sure thing. Guys are guys. It's a bonding thing. Just ask the boys at AIG, Goldman Sachs (GS) and Bank Of America (BAC).

In the next little while, as details of the public/private partnership emerge relating to all those "toxic assets" (can someone please come up with a better name- I'm sick of this one), and details emerge out of the March 12 mark-to-market hearing aimed at relieving pressure on our institutions, it would certainly seem things are about to pop on the market (don't hold me to the day).

I know this pop is coming because the Man made the Call. And with each and every day that a hundred million US taxpayers are getting tanked in the markets- life savings going out the window- Obama will have some serious egg on his face if he's wrong, even in the near-term. Plus, he's got Doctor Doom in his back pocket.

It's a no-brainer.

The Crash was for a good cause, right? So, no one sell. And, everyone hit your bookies up tomorrow for a buy.

Remember- they'll give you the odds- and throw in the vig if you're chumped way up on the money...

GT McDuffy

(Author is long on Thomas Jefferson, a good ol' Capitalist Cowboy)

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