Tuesday, December 30, 2008

The McDuffy Report: Heading Into 2009 With Nortel Networks

The McDuffy Report: Nortel Networks (NT)
January 1, 2009

Heading Into 2009
Key Turnpoints

Export Development Canada, which, as of December 15, 2008, had granted company a 30 day waiver through January 15, 2009 to permit continued access to its EDC performance-related support facility, has been apparently working with company to potentially grant a permanent waiver by then. EDC has the right to terminate facility based upon a recent Moody's downgrade.

An interest payment of $100-120 million is due by January 15, 2009.

Company has reportedly sought legal counsel recently in regard to exploring possible bankruptcy protection if its current restructuring objectives are not realized vis-a-vis its creditors. However, a company spokesman said that no bankruptcy filing is imminent. Investor alert: any claims made or opinions stated to date by analysts, bloggers or posters that company may file for bankruptcy prior to January 15, 2009, or in the near-term, are pure conjecture.

Company has reportedly had several $1 billion bids for its Metro Ethernet Networks division, including a $2 billion (USD) bid from China’s Huawei Technologies Co. Huawei, interested in entering the North American market in a big way, has also reportedly offered to buy the company outright. However, in March 2008, the Committee on Foreign Investment in the United States (CFIUS) had already nixed Huawei's desire to buy a 16.5% stake in Massachusetts-based, 3Com Corp. (COMS) citing national security concerns. Nortel is reportedly lobbying both US and Canadian governments to allow Huawei bid, although seems unlikely to be approved given prior 3Com rejection. Investor-alert: through the close of 2008, any claims made/published by certain bloggers in regard to MEN purchase, as to likely-hood or ballpark price range are pure speculation.

Company is apparently interested in using its accumulated research and development (R&D) tax credits as collateral to borrow money from the Canadian Department Of Finance- tax credits which company cannot claim unless it is profitable. The Canadian government would, therefore, have to amend related provisions in order to allow this to occur.

Company, which, on December 11, 2008 had received a deficiency notice from NYSE as a result of the company's common shares having an average closing price of less than $1.00 per share during the consecutive 30 trading days ending December 9, 2008, has until June 9, 2009 to cure said deficiency. Under NYSE policy, in order to cure the deficiency for this continued listing standard, the company's common stock share price and the average share price over a consecutive 30-trading-day period both must exceed $1.00 within six months following receipt of the non-compliance notice (the NYSE also may notify the company that the NYSE has the right to re-evaluate continued listing determinations with respect to qualitative listing standards, including an abnormally low selling price at sustained levels).

A reverse-split is one method normally used to cure the $1/share closing price deficiency. Nortel would have to receive shareholder approval for any reverse-split. Company has an upcoming spring 2009 annual shareholders meeting (2008's shareholders meeting was in May). Companies normally do not reverse-split until 180 day cure period has expired (or is about to). Investor alert: any claims made by bloggers or posters that company will reverse-split prior to the aforementioned spring-2009 shareholder meeting, or without shareholder approval, are false and misleading.

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Wednesday, December 24, 2008

How The Congressional Crackdown On Bank-Bailout Money Will Kick Start Lending Again

Taxpayers are getting angry, yet again.

And why shouldn't they?

First, it was lavish spa parties thrown by AIG executives whilst blood ran cold on Main Street. Then it was the auto Big Dogs from Ford (F), General Motors (GM) and Chrysler (DCX), cups-in-hand, flying to D.C. in their private jets.

Now, in what promises to be the "next big thing" on that ever-enlightening and continuing reality-television program, "Top Execs Go To Washington To Explain Embarrassing Moments," let's all get the popcorn and beer ready for the next episode.

Subtitle: "We Banks Didn't Reveal Specifics Of How We Spent The Bailout Money Because You Didn't Say We Had To, Daddy!"

Next month, as Senators' Dianne Feinstein, D-California, and Olympia Snowe, R-Maine, roll out legislation compelling companies that received money from the $700 billion bailout fund to report exactly how they have spent it, simple logic dictates that this will also lead to a parade of major bank executives onto the "boob tube" in front of the entire nation, as was similar to what happened with those "wild 'n crazy guys" at AIG and Auto Land.

Maybe, Vik Pandit, former-studly star of "If I had To Do It All Over Again, I Swear I Would Have Listened To Charlie Gasparino" - and now producing the hit day-time soap, "Citigroup 10043"(C), will be there. How about, Ritchie Kovacevich and Johnny Stumpf from Wells Fargo (WFC) -whose weekend-rock band recently released the nearly-self-titled, "Ritchie and Johnny Rock Live From The Haight." And, of course, JP Morgan's (JPM) Jamie Dimon, who was recently heard asking one of his employees, "Hey, can you run a check and see if we ever gave any money to that crazy Bernie guy?" could also make an appearance.

So, why are they destined to appear on the TV?

Because Congressional representatives like to get on the TV. All the time. Just like actors do. This, is a given. And bank executives, who probably won't want to be embarrassed on TV in front of a bailout nation of taxpayers, know their date on D.C. reality television is inevitable. This, in my prediction, because banks will, at first, resist having to disclose any dirty bailout laundry. And, this, in turn, will cause Congress to turn up the heat to do exactly that.

But, the banks will use their "resistance" as a delay-tactic in order to buy themselves time to actually, finally, get their lending programs in gear- so that, by the time Congressional pressure boils over, the banks' top executives can roll into Washington with a bunch of "Well, look- see? We've already begun to do this. And we already did that. So whatever we haven't yet done, sorry, but, you never said we had an actual time-table to get things going."

Therefore, it is my belief, now that the story of a Congressional witch hunt has broken, lead bank executives are, as we speak, scrambling to "tidy their rooms and make their beds" before Daddy gets home. You know: do everything they were supposed to be doing these last few months. All those things that will immediately kick-start the mortgage, "re-fi," consumer loan and commercial loan sectors- and turbo-charge overall market liquidity.

This couldn't have come at a better time, either. The markets are confused and sad. Taxpayers are extremely nervous. We haven't yet gone completely over the cliff. But, the slowness of banks to get their acts in gear, with impunity, if you will, has made Wall Street players and Main Street folks angry- and everyone wants, nay, demands results.


Why the government gave the banks all that money in the first place without also insisting on the very disclosures they're seeking now, and why no meaningful oversight over these banks was ever set up from the "git-go," is a whole other story. One that constituents should be demanding of their representatives- en masse.

But, in real-time, this is now. And we'll take what we can get.

And what we're finally gonna get are results. Because "shame" and "world-wide television audiences" don't mix well with corporate executives- especially now that they've all seen the same reality TV show that all we little people have been watching, too.

So, listen up all you good-American spending-wannabees out there (and you know who you are). Santa Claus just came to town, and he just gave us all the biggest, best, baddest and most practical gift he could fit on his sled.

Ssshh, I'll give you a hint (but, don't open it 'til Christmas).
Okay, it has something to do with liquidity.

That's spelled:

"l" for "loans are what banks can really do when they are forced to"

"i" for "i can't believe we gave banks all that money and they haven't used it the way they were supposed to"

"q" for "quit messin' around with my wallet. Else, my wife's gonna leave me."

"u" for "under a moonlit sky, I thought I saw Elvis riding shotgun with Santa."

"i" for "i know bank executives are rich, but, what am I?"

"d" for "does this mean we also get iPods for Chanukah this year?"

"i" for "i think 2009 is going to be a Good Year after all, just like Kudlow said."

"t" for "trade in your Prius for a brand new Ford Fusion, and show Michael Moore he was all wrong about Michigan."

"y" for "you'd better not be snoopin' under that darn X-Mas tree before we're all gathered to open our presents!"

Ho, ho, ho!

Merry Christmas to you all.
Happy Chanukah...And, have a wonderful Happy New Year!

GT McDuffy

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Saturday, December 6, 2008

Why Kudlow And Cramer Are The Sexiest Men Alive

Yes, George Clooney's hot. So is Brad Pitt, I suppose.
Women love 'em. Men want to be like them. Yeah, sure.

But, they pale in "hotness" when stacked up against the pure and unadulterated sexiness of CNBC's Larry Kudlow and Jim Cramer.

What defines sexy?

To me- it's a man (or woman) who is unafraid to state his case- and stick by his beliefs, to the bitter end. Like a knight fighting for his King and Country, come hell or high-water.

Oprah's incredibly sexy. She knows what she wants and how to get it. She knew Barrack Obama's place and time in history had arrived- and she launched a successful crusade in the face of overwhelming odds and disbelief. She helped change the course of history. She's done this a lot. She's hot.

Henry Paulson's not so sexy. He waivers too much, Real men don't waiver. Real men are smart men- they make the right decisions, so they don't have to waiver.

So why are Kudlow and Cramer so darn hot and sexy?

I am certain that, in some years from now, when the Dow is at 16000, if history were to accurately recall the gloom 'n doom time that was the Great Crash Of The New Millennium, these two men will be remembered as the markets' saviors.

Saviors are sexy, let me tell you.

When we look back to 2007 and 2008, we will see that both Kudlow and Cramer stood fast and tall in the face of relentlessly-terrible, headline-grabbing market pessimism brought on by hordes of irresponsible and self-serving so-called market analysts and "experts" who were paraded in front of the financial world on television and the rest of the New Media- who used and abused their power to access the media in order to advance their own careers, in fact, knowing they were scaring the average citizen and investor into actual financial loss and severe emotional distress. Not unlike calling fire in a crowded move theater.

Yet both Kudlow and Cramer, who clearly understand the global power they possess on CNBC, decided to use their power, and intelligence, not to destroy confidence in the markets, and with the average investor, but, rather, to stand in the face of all those gloom and doom self-serving market mavens, stating their own cases on a daily-basis for market positives. In effect, shutting down the gloom and doom tribe at every turn. Presenting a positive face when everyone else fed on their own self-perpetuating negativity. Offering constructive and insightful- and yes, optimistic, fixes for that which had gone so wrong.

Kudlow with his "planting mustard seeds" and bullish calls to investors. A man who took on, tit-for-tat, those of his guests who dared use his show and the national media to put forward inappropriate and irresponsible negative agendas- always making sure the viewer came away with a positive spin on the matter- no matter how dire the call for financial disaster. His ever-consistent, rock-solid confidence and savvy ultimately moved markets to the upside. Trust me.

God bless him.

And Cramer, oh Cramer. Let me count the ways. Cramer was perfectly unafraid to stand up to those who manipulate and destroy markets for a living. And I'm not talking about the Cramer who flies around his set with an ever-growing bunch of funny props, nor the man who fires up a legion of adoring college fans with "boo-yas." I'm talking about the Cramer who is undying in his pursuit of the truth and fairness in life, as well as the markets. I'm talking about the Cramer who, with nerves of steel, called on the government of the United States Of America to get off its proverbial butt and tackle the unfolding crisis before it was too late. And he showed them how. It took them awhile to catch on, but, eventually, they caught on.

We all owe Larry Kudlow and Jim Cramer a great, great debt of gratitude. Without these two men having been in the right place at the right time on CNBC- I shudder to think where the markets and the world economy would be right now. Yes- it's bad out there. But think of what it would be like had these two brave men not been in place in this time in history.

History will recall that these two Noble and Brave Men saved the markets- in the Year of our Lord- 2008.

Like two Glorious Knights who fought for King and Country and emerged victorious.

And, that's why they're the sexiest men alive...

GT McDuffy

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Wednesday, December 3, 2008

A Remedy- Finally- For Short-Selling Manipulation

There has been a ton of discussion over the years on the subject of short-selling manipulation in the stock market.

I've heard and read many opinions on this very serious matter- but there is, in fact, a sure-fire way to combat the problem. A cure that I have not yet seen discussed anywhere.

First off, my article is not, per se, about naked shorting- which in itself, is a staggering problem and, I suspect, still highly rampant in the market place, even with the SEC's recently announced efforts to go after said illegal shorters.

This article, rather, tackles the issue involving a tactic that short-sellers use to pummel the price of a stock lower- which creates panic in long-position holders, and, in fact, convinces anyone interested in buying the stock to simply wait for a lower stock price to enter. Why would any rational "potential-long" buy higher in the face of a short-raid, if he or she can simply wait for the stock to first be pummeled- and THEN buy long.

I have heard a lot of talk about how killing the uptick rule was devastating for stocks, but, in reality- this was only part of the problem.

The real problem is that shorts love to "pin the bid"- which is a manipulative technique whereby short-sellers don't first wait for a buyer to come to up them at a higher level, say on an ask price- but, instead, they short directly on the bid price repeatedly (called "pinning") until the bid finally "caves in."

Shorts have learned that if they "tag-team" the bid in this manner, it will, undoubtedly, cave- and the resulting bid will be pushed lower, and then lower and then lower still. With the ask price lowering in tandem with a dropping bid price- exacerbated by other shorts on the ask going lower, longs now start to panic and lower their sell (ask) price even further- and many longs then start selling directly on the bid itself; eventually, the bid is actually taken lower and lower mostly by longs as they panic in trying to get out of the stock- and potential long buyers lower their bids in trying to buy as low as possible- eg: the "bid drops out."

Obviously, shorts don't first "speak" with each other in coordinating a pin-attack (although the message boards easily allow traders to communicate trading strategies to others). But, in stocks where there is a lot of short interest- and there are (were) many, it doesn't take much for certain shorts- whether fund traders or wealthier individual traders to initiate the pin process- and for other shorts to immediately recognize the attack under way, and then pile in.

Indeed, with lower-volume stocks, the potential for downward manipulation is far greater, because resistance by longs is proportionally lower- and bid/ask spreads are wider. And with very low-volume stocks, such as ones that trade under 250,000 shares/day, a short-seller with a good amount of money can, single-handedly, easily crush the stock price downward.

One important additional component of the pin-the-bid technique is for well-capitalized shorts to first "load up" at as high as price as possible- waiting for the stock to have a strong market day or two, or an intra-day pop (even as a result of a "short-squeeze") to place the bulk of their short-sells. Then use additional funds available to them to then force the stock lower. In other words, these shorts make money off their "higher-priced" short positions, and then make additional money in relentlessly driving the stock lower.

The key to the latter- is that once a pin attack is launched, as I said, long-position sellers panic PLUS those who are looking to buy long will lower their bids to ultimately buy long as low as possible. These two resultant "panic plus bottom-fishing" motives by longs snowballs the bid-pin/downward short manipulation process. In effect: the shorts manipulating the bid downward rely on their technique to cause the snowball- thereby the shorts don't have to do much work (or spend much money during the pin) to cause the stock to sink a lot lower than it normally would have.

And, then, of course, once shorts have made enough money, they begin to cover buy and take their profits.

So, what can be done to solve this problem- which, I believe is rampant in the market?


1. Don't ban short-selling- as you need short-selling to create a liquid trading market.
2. Don't just re-instate the "up-tick" rule.

Instead: do not allow shorting on the bid. Period.

I'll say it again- do not allow shorting on the bid. Longs could sell on the bid. Shorts could cover buy on the bid. But shorts couldn't short on the bid.

It's simple. And it will resolve a ton of issues that relate to downward manipulation of the market.

Logically- if short-sellers were wanting to operate ethically, they would not have a problem with this. Why? Because if a short-seller truly (and ethically) wants to maximize profit on a trade- he would want to place his short at as high a price as possible and then cover-buy as low as possible. Why pin the bid, when you can short at the ask- or higher.

Indeed, if shorts were operating ethically, they'd want the longs to come up to them, and then rely on legitimate market forces at work- such as negative news- to fuel any sell-off.

But, since shorts rely heavily on tag-teaming a stock lower- which they could not do if they were not allowed to attack the bid, I am certain shorts would object to my simple proposal.

I would highly recommend that the SEC, Congress, and companies lobbying Congress against short-selling- such as Citigroup, strongly consider implementing this change. It will not result in stock prices being "higher then they should be"- but, rather, it would allow for stocks to not be crushed without reason.

As for naked shorting- interestingly enough- such naked "phantom" shares might then, very well, be exposed by surveillance bots as the only short-sells that show up on the bid- as legitimate ones would be prevented from doing so at their source.

Thus, such naked bids could be isolated and dealt with immediately by enforcement.

You see- most members of the SEC, Congress and company executives don't trade- so they don't sit there looking at Level 2 on any given day watching this manipulation in real-time. It's so easy to spot- in fact.

Perhaps someone should be invited to Congress- and set up a giant real-time trading screen for House members during market hours- so they can be shown what goes on in the very stock market they say they want to fix and support. Then, bailout dollars-to-donuts- they'll have it fixed before you can say- "Don't pin that bid, short fella."

Hope you all have Very Happy Holidays.

Even you shorts...try not to tag-team the Turkey will ya?

GT McDuffy

This article may not be reprinted or re-posted, in whole or in part, without the expressed written or email consent of the author, except by the Securities and Exchange Commission, or their designees, and by Seeking Alpha, which are hereby granted permission by the author.

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