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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Saturday, March 7, 2009

A Sure-Fire Strategy For Republicans To Win Back Main Street In 2009

With great fascination, I have been witnessing the Obama administration punish Wall Street- and to try to "divide and conquer" Main Street in the process. To many who are "outside" Wall Street- this may seem like a good thing. But, since an estimated 90-100 million Americans are invested in the stock market- whether through direct stock purchases, mutual funds, IRA's, 401k's, etc., then Obama's relentless pursuits are actually simultaneously punishing Main Street.

The reality is that there are several things that the Obama administration and his Democratic posse can do to immediately halt the market slide and, in fact, would bring the stock market up in a major way- yet, it has become readily apparent that these are things that neither Obama nor the Dems are really interested in doing. In fact, it has become apparent that they are more interested in rushing their partisan agendas through an overloaded Democratic Congress while citizens are in panic and Obama's popularity is still high, rather then simply making the fixes I have alluded to.

Therefore, it has exposed an incredible opportunity for Republicans- to seize the moment and take back Main Street, and to do it immediately- at this critical point in the financial crisis and in American history.

It's a simple strategy and one that cannot fail:

The Republican Party, led by their best and brightest economic minds, should immediately host a slew of Town Hall meetings across America and explain to the American people exactly what the government can do to halt and "re-up" the stock market slide in clear and simple terms. The issue here is that the average citizen does not understand the mechanics of the stock market nor accounting procedures. yet they know something is seriously wrong with what is going on as they witness their stock market investments and retirement savings going down the drain. They just don't know how to put it in words- nor do they understand the technical concepts behind the fixes that are available that the Democratic-heavy government apparently does not want to implement.

Because, if the people of this great country realized how simple these fixes are to make- and come to realize through these Town Hall meetings that Obama and his posse haven't already put these fixes into place, when they've had ample opportunity to do so- any anger Main Street has against Wall Street will fly out the window- and, in fact, will be re-focused where it should be- on the Obama administration and certain Democrats in power.

One of these fixes is to fairly modify fair-value accounting (FASB 157's mark-to-market provision), which, strangely enough, is actually something that one of Obama's key advisors has been crusading for- yet Obama seems to have been shutting him out of the process. His name is Paul Volcker, a former Fed Chairman and the guy who actually already saved the United States from a previous economic crisis back in the early 80's. Instead, Obama appears to be hellbent on diverting the American people with rhetoric that Wall Street has gotten away with "accounting tricks" in the past. Yet, the reality is, the current accounting mark-to-market model has been unfairly applied to our institutions- to the incredible detriment of the markets over the last couple of years- and continues to do so. The SEC holds the power to suspend mark-to-market:

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."

Interestingly enough, Mary Schapiro, is the new SEC Chairwoman appointed by the Obama administration, She has not effected action yet, despite the financial crisis being in full force. Another interesting thing to note: both Paul Volcker and current Secretary of the Treasury, Timothy Geithner, are both members of the powerful Group Of 30 who endorsed the following:

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.

So where is Geithner now on this matter- now that he is the guy appointed by President Obama to fix this financial crisis? Ask President Obama.

Another fix is for the SEC or Congress to reinstate a modernized electronic-trading-friendly uptick rule for stock trading, or to ban shorting on the bid, or even to suspend short-selling altogether- as the SEC already did temporarily last autumn (2008) at the outset of the first major leg down in the stock market- which resulted in stock prices roaring back because short-sellers were no longer capable of crushing stock prices downward- therefore destroying not only the stock prices of our great companies and institutions, but also annihilating Main Street America's passive investments, pension and retirement funds tied to the stock market. Unfortunately, the short-selling suspension was lifted about a month before the November 2008 elections. And, stocks began tanking all over again as more public panic ensued. Hmm...

Meantime, over these last months, neither the SEC, the Obama administration nor certain powerful members of Congress have actually undertaken to immediately implement any of the above fixes for the stock market- much to the dismay of those on Wall Street and resulting in mass public confusion and loss of wealth for those on Main Street who are seeing their money fade away with each passing day- and don't understand why.

A third immediate fix is to shut down the credit default swap market- which is a tool used by certain traders to manipulate the financial markets- and which has been under investigation by the SEC since last winter. It's March. Nothing. No fixes made.

And there are more fixes in the toolkit.

Meantime- Republican should jam home the message that President Obama and Democrats are fully aware that these fixes exist for them to effect (which Obama certainly is absolutely aware of), but seem to refuse to do so- and, at very least, are dragging their heels with endless "studies" and politicking.

So now you know.

And if Republicans bring this message to the people in simple terms- and jam it home in the context of my proposed Town Hall meetings (and on national television whenever they have the opportunity), and explain these fixes clearly and logically- Main Street will jump faster before the GOP can say how fast can we get to the next elections.

Except, we don't have until the next elections to get these fixes implemented. If we let things continue as they are- Americans will continue to see their financial well-being go out the window and will remain in panic. Job losses will continue to mount.

It's time for Republicans to move on this- because the Democrats are not. It's for the good of ALL Americans. And Americans will finally understand- in reality- why the "market crisis" persists.

GT McDuffy

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Thursday, March 5, 2009

Image Entertainment: The Soap Opera Continues

Image Entertainment Inc. (DISK), a leading independent licensee, producer and distributor of home entertainment programming in North America, recently announced that it had informed Nyx Acquisitions, Inc., an affiliate of Q-Black, LLC and Joe Q. Bretz, that Nyx was in breach of their November 2008 merger agreement. Under that agreement, set to go into effect this first quarter, 2009, Image shareholders, who voted to approve the deal, were to receive $2.75/share.

It's all been looking very "iffy" -but now seems to now "getting better." Until the next relationship hiccup, that is. A real stock market soap opera.

Yesterday, under the continuing threat of Image terminating the agreement for cause, Image agreed that if Nyx, by March 6, 2009, deposits the remaining $200,000 of a half-million dollar additional deposit fee relating to completion of the merger, its completion date would be extended to March 20, 2009- while Nyx comes up with the necessary funds to finalize the deal.

The ongoing saga has sent Image shareholders on a roller coaster ride, to say the least, with each modification and extension.

This is not the first time that Image has found itself in troubling merger territory. A 2007 planned-merger between BTP Acquisition Company and Image ultimately became entrenched in an elongated "each side blaming the other" merger fiasco, which, in the end, fell apart in early 2008- leaving shareholders to raise serious questions in regard to the affair.

Also, a few years back, Image was the target of a hostile takeover attempt from Lion's Gate (LGF), in which Lion's Gate sent a 10-page a letter to Image stockholders urging the election of six independent board members "to replace Image's current directors." Lion's Gate made two separate offers over 13 months for $4/share- which Image decided was "inadequate" and accused Lion's Gate of keeping Image's share price from increasing due to its actions, hoping to have Image shareholders accept the $4/share offer.

Furthermore, in response to Nyx Acquisitions' November 2008 agreement to buy Image for $2.75/share, certain Image shareholders objected to that offer on the basis that it was too low, hiring a law firm to investigate Image for potential breaches of fiduciary trust and other violations of state law by Image's Board of Directors.

So, this latest merger saga with Nyx may come as not much of a surprise to shareholders or observers of all things Image Entertainment, yet, incredibly aggravating nonetheless- although it would certainly seem to make for great day-trading.

Could it could be a similar BTP Acquisition-type love in the afternoon quarrel all over again? Shareholder deja vu, indeed.

The only very positive common thread running through Image merger infamy, as consolation to shareholders, is that at least through all of the battling, Lion's Gate, BTP and Nyx suitors all prized Image at a minimum of $2.75/share, and up through $4.68/share (BTP). Image had also entertained serious potential offers (in the $2-$3/share range) from two additional suitors in 2008- but had decided to go with the Nyx deal instead.

So today's closing stock price of $1.14, from that perspective, is very low (discounting current broad market conditions).

One hopes, for Image shareholders' sake, that Nyx Acquisitions, Inc. makes good from its end. Obviously, Image Entertainment can attract suitors- which speaks nicely as to its value on various business levels.

Fellas- can't you all just get along?

Stay tuned...and certainly, don't change that channel.

GT McDuffy

(The author has no positions in any of the stocks mentioned in this article)

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Monday, March 2, 2009

SEC's Mary Schapiro Is Exploring Remedies For Short-Selling Manipulation

In early December 2008, the SEC placed my article proposing a remedy for short-selling manipulation on their website for consideration. My solution entailed enacting a simple rule: disallowing short-selling on the bid.

This idea is somewhat different than reinstating the uptick rule in that the latter solution provides that a short sale can only be entered after a trade causes the last price to increase; a short-seller can still short on the bid as soon as the last trade causes the stock price to go up (shorting allowed when the green "U" symbol or neutral "zero plus" shows up on Level 2).

Securities Exchange Act of 1934 Rule 10a-1 -- Short Sales [Removed and Reserved, Effective July 3, 2007]:

No person shall, for his own account or for the account of any other person,
effect a short sale of any security registered on, or admitted to unlisted trading privileges on, a national securities exchange, if trades in such securities are reported pursuant to an "effective transaction reporting plan" as defined in Rule 242.600 of this chapter and information as to such trades is made available in accordance with such plan on a real-time basis to vendors of market transaction information:

A. Below the price at which the last sale thereof, regular way, was reported pursuant to an effective transaction reporting plan; or

B. At such price unless such price is above the next proceeding different price at which a sale of such security, regular way, was reported pursuant to an effective transaction reporting plan.

My solution would allow shorting at any price and at any time, just not on the bid price, and negates most prevalent kinds of downward manipulation tactics employed by short-sellers to push stock prices lower and lower using a technique called "pinning the bid."

If short-sellers were operating ethically, they would want to short at as high a price as possible, and then have the stock move organically lower. Instead, shorts rely on attacking the bid price until it "caves"- which, in turn, results in longs panicking and selling lower than they would have. And potential longs (the smart ones) simply wait for the "pin the bid" attack (bear raid) to end- which is the point in time when shorts start to feel the bear raid may be overdone, and/or that a short-squeeze is overdue.

Very recently, the new SEC Chairwoman, Mary Schapiro, told the New York Times that she is "exploring whether to impose restrictions on short-selling...and is considering the revival of the uptick rule."

Shortly thereafter, Fed Chairman, Ben Bernanke, testified before Congress that, "In the kind of environment we have seen more recently" the uptick rule “might have had some benefit.” He also relayed that, if Mary Schapiro asked him, he would be in support of it.

Former SEC Chairman, Christopher Cox, who tried to get a modernized uptick rule restored last year, said he was out-voted by fellow SEC commissioners. His proposed version of the rule would only allow shorts to place their orders a few cents above the best bid. One of the problems in reinstating the original rule is that fast-paced electronic trading poses a very difficult-to-overcome operational logjam.

Which is why my version of the rule makes sense across the board. It's simple to implement in high-volume, fast-paced trading: any incoming short-sale offers would be instantly compared to the highest best bid price available and rejected immediately if they match that bid price- therefore, a short-sale offer price would be filled only by a long (or short cover-buy) coming up to a short-sale ask price. And, of course, once short sale offers are rejected for being placed at the bid price, or if short offers are meant to crowd a rising bid and risk being rejected, these short-sellers would then have to reload (or potentially reload) their trade tickets, or already have separate trade tickets ready to go- further slowing down the ability to attack a stock.

My idea also has the added benefit of preventing any naked shorts from "dropping" their illicit shares on the bid. Naked shorting is another huge problem relating to short-selling downward manipulation (although, there has been a large drop in naked shorting since the SEC warned brokers last fall in regard to Reg Sho discrepancies).

Whichever solution Mary Schapiro may choose, it is imperative that she holds true to her stated mission to move quickly- as with every passing day, the shorts are clobbering stocks left and right by manipulating stock prices downward in an environment where there are fewer and fewer longs trading (many of whom are simply waiting for the bear raids to play themselves out)- all of which is exponentially destroying the wealth of millions of passive investors, including those who have their 401k's tied to the stock market. Trading desks are fully aware that, in effect, "there are only two trades going on these days- the short-sale and the short cover-buying."

Any and all arguments that short-sellers make against reinstating the uptick rule or my rule is total nonsense- because the small minority of short investors who trade should not be allowed to do so at the expense and destruction of capital wealth of millions of American investors and companies. Especially in regard to passive investors who aren't in the market trading themselves.

In fact, suffice to say, the person who gets the uptick rule restored (or who implements my rule) will go down in history as the person who really saved the markets- and millions of long investors.

Because stock prices will start to rise, which will instantly stop the panic- and, soon after, confidence will be restored in the stock market.

Let's boot these shorts where it's for the good of all fine Americans.

GT McDuffy

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