Tag Archives: wall street

The BLS Report for April 2011 aka Non-Farm Payrolls… Not as Good as it Looks

HedgeFundLIVE.com — Today’s BLS Report not only beat the expectations by a wide margin but also printed a very good number on an absolute basis.  This, in my humble opinion, is where the good news ends.  There are quite a few reasons that one could argue that the report is not as good as it appears.

1) The birth death adjustment for the month was a positive 175,000 jobs.  This compares to adjustments of 112,000 and 115,000 jobs added for the months of Feb and March, respectively.  So, one could easily argue that some large percentage of the April payrolls number is imputed from statistics on the birth and death of companies in the month of April.  In fact, I would argue that at least 60,000 of the 268,000 increase in private payrolls are phantom jobs and thus the number could be much closer to the expected 200,000 private adds.

2) Temp jobs deteriorated in the month of April quite significantly.  Temp job adds went from positive 11,500 in Feb and positive 34,400 in March to a NEGATIVE 2,300 jobs in April.  While this may not seem like a big deal on the surface, temp jobs are a very good leading indicator to future hiring plans so the deterioration could indicates weaker future payrolls numbers.

3) The bulk of the increase in private payrolls in April (positive 57,100 vs negative 3,200 in March) came from retail and primarily merchandise retail which, in my opinion, are not the best jobs to create future economic growth.  In addtion, these types of jobs have very high turnover and thus could create negative payrolls in the future.

4) The Household Survey came in very negative in my opinion with the unemployment rate ticking up to 9.0% from 8.8% from a simply increase in the number of unemployed of approximately 200,000 and a concomittant decrease in the  number of employed persons of 200,000.  There was no math in this number as the participation rate stayed at 64.2% as it has been for the last few months and the civilian labor force was little changed.  This is what I would call an extreme divergence between the Household Survey and the Establishment Survey (the one that calculates the payrolls numbers).

So, to conclude, I would not be overly bullish on this BLS report and would view any rally as a result of it cautiously.


Weak Loan Growth Keeping the Banks Down Despite Strong Earnings

HedgeFundLIVE.com — As of today approximately 29% of the S&P 500 companies have reported earnings.  On average, 77% of those companies have beat street estimates by an average of 5%.  This shows in the S&P500 index which made a new high today.  As far as the financials go, however, it’s a completely different story.  So far, approximately 45% of financial names have reported with the vast majority beating street estimates by an average of 8%.  While the financials are beating by more than the average S&P 500 stock, their shares are rising to reflect the beats.  This is primarily because the street is viewing the earnings of most banks as somewhat low quality as they have come from improving credit as opposed to increased revenue as a result of loan growth and other primary operating activities.  For example, JP Morgan (JPM) beat the street earnings estimates by a fairly wide margin of 17% in the first quarter and even beat the revenue estimates albeit by a lower margin.  Since the earnings announcement, however, the stock has dropped like a stone and is now nearly 6% off its highs.  For another example, look at Wells Fargo (WFC) which beat street earnings estimates by around 8%.  Regardless, the stock is down around 10% off of its near-term highs.  Granted, Wells did miss the revenue estimates by a 4% margin.  I can cite a few more examples but you get my drift here. So what is going on?  Well, investors want to see loan growth which, under most circumstances, leads to increased revenues and thus higher earnings.  In my opinion, the street is taking too myopic a view here as the banks have just been through the worst crisis in recent history and most are still in the process of de-risking their balance sheets.  What is great is that most of these banks still hold recession-level loan loss reserves and I believe that they are, for the most part, on the verge of some measurable loan growth as the economic recovery proceeds.  So what you have here is a classic buying opportunity presenting itself as a result of the standard myopic group-think that is Wall Street.


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Currently in these market condition one should not fear being two-sided. This market provides up the opportunity to make money from both sides at the same time. Often on the desk you will hear XYZ stock on highs and someone else is shouting XYZ stock on lows. This provides traders the opportunity to play both sides simultanesouly and make money. What we have seen is the strong names remain strong while the weak get weaker. This can be a simple strategy for a trader to employ. Buy strength and short weakness. Far from being an expert trader with just under two months in the industry this strategy has been helpful to my success. Recently I have traded some new ideas and will be going over them during a morning camtasia. Being prepared is key in successful trading. Also fortunately for me, I am on a desk that has over 100 years of Wall Street experience. But anyone can listen to our market commentary throughout the day. By signing up and tuning in, to our trading desk. You will be able  to trade the markets along with some of Wall Streets best and have insight to what we are doing here at Hedge Fund Live. Hopefully, our commentarty is valubale to you and helps propel your trading.

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The Face of Finance

HedgeFundLIVE.com -  Between the massive Georgia marble walls of 11 Wall Street lies a space steeped in history and tradition.  The frantic outcry of traders and the whirring of vigorous machines produces an aura that possesses a uniquely romantic charm.  The floor of the New York Stock Exchange stands inexorably tied to the notion of capitalism in our collective cultural psyche, yet the future of this landmark remains in question.  In 2011, NYSE Euronext, the parent company of the Big Board, was approached by competing takeover bidders; first by the German based Deutsche Börse and consequently by Nasdaq-ICE.  While both companies have varying, lucrative propositions regarding stock listings and product offerings, the debate over the future of 11 Wall Street remains a unique dilemma.

Over the course of deliberations between the Deutsche Börse, Nasdaq-ICE, and NYSE Euronext, both bidders have pledged to keep the trading floor intact; however, two separate visions have emerged.  The Deutsche Börse deal would create a combined company that would continue to trade stocks domestically while providing access to faster-growing international derivative products.  While the Deutsche Börse has itself moved towards an electronically centered model that employs only 120 traders on its Frankfurt floor, this deal would likely allow the cash equities side to maintain its current man and machine design in New York.  On the other hand, many believe that the fully electronic Nasdaq will seek to reform the status quo.  Nasdaq cheif executive Robert Greifeld sees the current hybrid floor model as cumbersome and defunct stating, “It is over.  The trading that existed down the centuries has died. We have an electronic market today. It is the present. It is the future.”

While the two bidders maintain different visions for the future of the New York Stock Exchange, both recognize its historical and iconic significance.  For 219 years, the Big Board has stood as a bastion of capitalism and has provided a face to the much maligned financial industry.  Despite this, the NYSE has and will continue to evolve as new technologies emerge.  Whether the future trading floor resembles a Greek agora or a sterile mission control center remains to be seen, but one thing is certain; every morning a human hand will come crashing towards earth to ring the opening bell.


Tuesday Stock Market Expectations – Tuesday 4/26/11 — Don’t be fooled by the rally!

HedgeFundLIVE.com —   Futures are up this morning. Once again in front of resistance.

Netflix was priced to perfection. It dropped nearly 5% after the close. With extremely light volume in the futures market, there is not much that can be read into yesterday’s trading action. Last week, the market went up on air and failed to break to new highs. Earnings do not seem to be the catalyst for that kind of a move. Bernanke press conference has significant downside risk to the market. In fact, I cannot see a positive reaction to what is a questionable attempt at transparency. Economic data does not reflect significant growth. It is mixed and seems very vulnerable. A minor slow down might have exponential impact on the overall economy. The thing that is most disconcerting is that there does not seem to be any realistic solution to the deficit crisis. There does not seem to be any solution to the unemployment crisis. The Middle East crisis is far from over. Syria may be the match that ignites an all out Shiite vs. Sunni civil war, as tanks are unleashed on civilians.  The dollar will begin to strengthen. It is inevitable. Simultaneously commodity prices will begin to contract. Demand for oil will deteriorate, as supply disruption has been contained, though geopolitical risks remain. China will stop building empty cities, and it will be years before Japan contributes to global infrastructure growth. Will Europe resolve its internal issues? It seems unlikely. European governments excel at procrastination. China has implied that it might bail out Spain. What? The global finance plot is getting so convoluted that the idea of investing on fundamentals has become an enigma, a legacy idea from a simpler time, an unachievable goal. The firm is short the major indexes and long financials.

CNN referred to Syria as the key piece to a regional Rubik’s cube. It is believed that nearly half of Egyptians want to end the peace treaty with Israel. Iran continues to agitate the Bahrainis revolutionaries. Italy will now aid France in its “No Fly Zone” mission over the sky of Libya. That is a real confidence builder. Gadhafi’s Bankers are bombing him.

The Gold rush is over. Silver was a bubble. Money will flow to the all mighty dollar. This will be followed by a sell off in oil that will create a domino effect in the commodities market. Commodities have underpinned the market for the last year. Technology is overvalued. Consumer related stock would be impacted by a flat lining economy. Banks with significantly improved balance sheets will be the primary beneficiary of all this dislocation.

Institutional buyers are on hiatus and will be until quarter end, two months from now. Fast money will continue to dominate the markets, but once they realize that the path of least resistance is down, it will take very little time for the S&P Futures market to make its way back to 1253.

Perhaps the most compelling argument for a sell off is the indifference that main street has started to feel for Wall Street. The confidence is broken and with it will go the market.


5 Reasons Why JP Morgan (JPM) is a Buy

HedgeFundLIVE.com – With JP Morgan trading in the mid-$40s which is about 10% off of its near-term highs, I thought I would put together a list of a few reasons why I like the name as a long.

1)      Based on street estimates, the stock has earnings power in the $6.00-$6.50 range if not higher in the next couple of years.  I think that these are fair numbers based on pre-provision earnings run-rating this year at $40bln+ with weak loan demand and fairly low interest rates.  Combining this with ever-smaller loan-loss provisions and markedly less competition equates to some pretty significant future earnings power.  Based on these estimates, the stock at current levels is trading at just over 7x forward earnings.  Apply a more –reasonable 12x earnings estimate to these numbers and you have a $75 stock at the mid-point of the range.  Heck, slap a 10x PE and you get to $62.50 at the mid-point.  Not a bad deal for a stock trading at around $45 per share.

2)      Great management.  Jamie Dimon has proven himself a savvy and appropriately risk-averse CEO who is well connected and surrounds himself with capable underlings.  He was trained by one of the all-time greats in financial services, Sandy Weill.  He was able to use this training to successfully guide JP Morgan through the worst financial crisis in a lifetime which gives me confidence that he will be able to do so again.

3)      You are getting paid to wait.  JP Morgan recently increased its dividend to an annual payout of $1.00 per share up from $0.20 per share.  While not huge, you are earnings a 2.2% return at current levels which does provide some downside protection.  In addition, the board recently authorized a $15bln multi-year buyback program ($8bln of which can be done in 2011) which shows that the company has a solid balance sheet.

4)      JP Morgan’s is very well capitalized which will provide significant flexibility once loan demand returns and also provides downside protection in the event of a weakening economy.  The company exited Q1 2011 with a Basel I Tier 1 common capital of $120bln or 10% and Basel III Tier 1 common capital of $116bln or 7.3%.  The company also exited the quarter with $30.4bln of loan loss reserves which represents a 4.1% loan loss coverage ratio.

5)      The company is very well-reserved for future loan losses.  At a loan loss coverage ratio of 4.1%, JP Morgan continues to be reserved for a recession when many would argue that we are now coming out of the last one.  Actual loan losses and delinquencies have been coming down substantially which shows the company’s success at de-risking its balance sheet.  While some could argue, and I’m sure they will, that even at these levels the company is still woefully under-reserved, in the end only time will tell.  Having said that, I’m comfortable owning the common of a bank sitting of reserves of 4.1% with a management team that has proven itself during the worst financial crisis in a lifetime.

You can manage my bank any day!


FRIDAY MARKET EXPECTATIONS 4/15/11 — The Market Continues

HedgeFundLIVE — Market expectations are as follows…

Yesterday was the start of things I’ve described in my previous blogs over the last month. A test of the 1300 level held.  With that said, earnings season is far from over, and a continued slide in commodities is a very real concern. It is very possible that we trade a range of 1300 – 1320 for the rest of the month, as many professionals will be taking time off for the holidays. The banks have found a comfortable level and Goldman looks particularly attractive at 154 – 155. They will survive. Inflation may hold steady, but ultimately that may actually mean a short-term correction, as the dollar will show strength under those circumstances. Yesterday was the first real day air came out of the very high beta names. NFLX seems to be the most logical short as serious competition is on the way, and they continue to sign overpriced deals with studios, which will affect earnings. A miss by NFLX would be disastrous for them as well, like many overpriced Internet names.  A 1254 test and perhaps a low of 1225 would complete an appropriate correction after a tremendous run since the financial crisis. The long-term economic outlook looks good and I still maintain my year-end 1440, which may be even higher if there is a legitimate correction. As was written in my previous blogs, the employment picture is holding steady, but not improving, as the Government would like you to believe. The Obama administration makes me nervous, as he seems emboldened to take on Wall Street again. He seems to have limited concern over any real competition for election year. Keep your eye on 1321 on the S&P futures; a break above it would cause me to reassess the current thesis. In addition any serious corrections will be met by increased buying, as I had misread the investor position previously. The lack of institutional buying and abundance of fast money led me to believe that investors were leveraged and at least fully invested, but JP Morgan’s Deposit growth alters that assessment. At the same time consumer credit is growing and wages are not keeping up with inflation. Not much more to say. I need to go spend $60 filling up my car for a trip out to Connecticut with the family this weekend. There will be a lengthier blog over the weekend.



Tuesday Market Expectations 4/12/11 - Full Blown Correction Is On The Way


Stock Market Correction - A Perfect Storm

HedgeFundLive.com — Flat on the day, but the firm was still down 25,000. This is a very troubling phenomenon, and it does not seem to be improving. This brings the firm to approximately positive 85,000 on the month. We are net short 6.5 million overnight. Earnings season has begun. Alcoa reported a slight beat on earnings and a slight miss on revenues. The stock is down 4.5% in after hours trading. This is the first indication that stocks are priced to earnings perfection. The dollar seems to want to begin to move higher, and commodities are turning down. This represents a potential perfect storm for the market. Initially a 1300 test had looked appropriate for the S&P cash. The last couple of weeks have changed bears into bulls. Everyone has gotten long. The market feels leveraged. There are only so many times that the market can stand on the ledge and be pulled back. 1300 no loner feels like a psychological level to hold. A full-blown 10% correction from the highs seems more likely. It would not be a surprise to see this correction after a historically strong first quarter.  The moves that might be seen in particular stocks will begin to concern prime brokers. The notion of another flash crash, while a small probability, has been priced out of the market. How did we get here? Greed and Ego. The investment community wants to believe that the employment numbers will continue to improve. Companies should be wary of hiring, as margins are the key to their valuations. Home sales are not improving. Ask your local broker. The spike we saw in the first quarter was year-end 2010 bonus driven. The Retail spending was year-end 2010 bonus driven. Consumer credit is on the rise again. Middle east problems are far from over. The Fed is no longer your friend. The Fed must be watched carefully. The Fed can quickly become the markets enemy in a Hawkish environment. The Dow seems most vulnerable, as it was previously the strongest index. Euphoria turns to fear so rapidly in the market that if one is not in the trade at the turn, most of the opportunity is eaten up in the first few days. The time has come to be short again. This time though, the potential reward should be significantly greater. While we will remain long beaten up names such as Akami, Yahoo, and Target, We will be short high beta and index hedges.  This perspective is an objective assessment driven not by what is wanted but by what is seen. As Eckhart Tolle writes in his novel A New Earth, “What a liberation to realize that the “voice in my head” is not who I am. Who am I then? The one who sees that.” The market has revealed itself, tonight’s positions are what my Self sees not what my Ego wants.


Paul Ryan wants to put our country on an allowance

Here you go old people, don't spend it all at once

HedgeFundLIVE.comThere’s been a lot of tough talk out of Republicans, Democrats, and the White House over the past few days regarding the passing of the federal budget.  Republicans want massive cost cuts, Democrats want fewer, and President Obama just wants something to be passed so that he’s not embarrassed by a government shutdown on Friday.  After all, it can’t look too good for the President if Washington comes to a standstill.  The end goal of the Republican proposal doesn’t seem too bad; Paul Ryan’s plan aims to reduce our deficit by $4.4 trillion over the next 10 years and reach “primary balance” by 2015, this means the budget would be balanced except for interest payments on existing debt.  (The budget wouldn’t really be balanced until 2040).  So how is he going to do this?  In very simple terms he’s going to put America on an allowance in many respects.  Medicaid, the government-run health insurance program for the elderly, would no longer guarantee a certain level of care; instead, the government would dole out subsidies to help seniors cover premium payments to private insurers.  One way to curb spending is to cap it, and this would certainly cap government spending on Medicaid.  Ryan’s plan has similar solutions for Medicaid and the Food Stamp program.  Both are run in concert with state governments.  The federal government matches (actually over-matches) what states spend on Medicaid.  Ryan wants to change Medicaid to a “block grant” system where the government would just send a check to the states for a pre-determined amount.  From that point the states would just have to figure it out.

I don’t have enough of an opinion on our fiscal woes to strongly agree with or oppose Representative Ryan’s plan; what I do have an opinion about is allowances.  When I was a kid my parents didn’t give me an allowance; whenever I needed money I asked for it, and I daresay I did not abuse my privileges.  My friends that were on an allowance, on the other hand, always seemed to be money-hungry fiends.  The second they got their weekly allowance they would search high and low for something to spend it on, be it baseball cards, silly putty, or concert tickets.  So from this adolescent point of view I must ask: wouldn’t we be better served teaching fiscal discipline?


Trader Self Analysis - We Are All Alone

A Trader Is Alone

HedgeFundLive.com —   I am an addict, or perhaps I am an extremist. But then again no, I am a man who cannot accept defeat. I only know that when you are down, you must get back up, and fight more fiercely than you did before. I have positions tonight. I am long low beta beaten up names and short crazy highflying, high beta names. I believe we failed to beak through technical resistance. As earnings season approaches I look forward to a string of disappointing revenues. It is too quiet on the news front. Libya is still a mess and will only get worse. Everyone seems to be bullish. Beware headline risk has been forgotten and everyone is leveraged.

Now back to my ongoing self-analysis. I suffer from a number of personality disorders such as extreme narcissism, anxiety disorder, but most important I am an existentialist who lives in a world of his own creation and I am alone. Though Marc Schwartz, say I am not alone, I simply alienate all those around me.

As you have seen if you have followed my recent blogs, I have found the best way to for me to understand myself, is an exploration of my family history.

I ended my last blog with a question, “When is it enough”. I was referring to my grandfather who after saving some of his family form Nazi Germany, struggling to build a new life in America, buried his oldest son only a few years later. When was his suffering enough?

A friend of mine recently suggested to me, after we had been going head to head about a theological issue that has been gnawing at me for the better part of my adult life, that I simply try to shut off that part of my brain, which is constantly seeking the answers. A ʻintellectual lobotomyʼ, as it were. “There are no answers”, he assured me. Much like the time when, upon hearing that a close family friend was diagnosed with incurable disease. I sought out our Rabbis guidance, hoping he would have some answers. “How can it be that this righteous person, a pillar of the community in which I grown up, had been handed down this sudden death sentence at a relatively young age?”, I questioned him.

A wonderful and righteous man, he looked up at me with his big doe eyes. There was a sparkle there, despite the morbidity of the conversation. It was the sparkle of blind faith. He took my hand in his and responded with such certainty, “Some things are just not for us to question.”

It was a blow to the solar plexus. Literally, the wind was knocked out of me as I turned his words over and over again. A million oompha loomphas danced around my mind chanting “not for you to ask, not for you to ask”. After many years of doing just that — asking — I can accept that there is no definitive to be had. Iʼm not sure where Bob Dylan’s breezes were coming from, but my wind does not blow in with the answers. And that’s ok — for there is a certain comfort in simply asking the questions. And so, reader, cleanse your palette. Savor the flavors of the questions, from the slow roasted mundane to the Tabasco infused catastrophic. But please know that I cannot offer you dessert. Mine is a fixed menu where the amuse-bouclé will have to amuse. There is a beauty in not knowing all the answers. But please, for Godʼs sake, let me at least ask my questions. Here’s my ticket — I just want to validate my parking….

How Many Faceable Shirts Does it Take? Sorry, Moses, No Can Do. Hello Mudda, Hello Fadda. Tuna with Mustard, again? Master of the Universe or Solace in Silence? Darwin just makes too much Darn sense Skim Plus or Whole? Wealth through Osmosis? What’s in a Name? Did the tree falling make a noise? Is Silence Golden? It’s Just a Cliff.

When is it Ever Enough?

I have brought you no further than my last blog, as regard to my family history. I am prone to both digressing as well as some insane rants. But in and of themselves, this exploration of my question is insight to the genetics that have been gifted to me through the gene pool lottery. The DNA dynasty of the Frommers. It is part of my self analysis and perhaps a reflection of that of your own as a reader.

So I will give you a bit more data. My Grandfather died in his mid to late 70s. I was 10 years old. I watched My Father mourn. He mourned in silence. He lived a great deal of his life in silence. Like father like son. He very rarely spoke of his father to me. I believe my father felt very alone. We are all alone, or perhaps Marc Schwartz is right and we are all simply alienating each other.

My self analysis continues.

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