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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