A Strange Feeling Pt 2

S

stonedinvestor

sequels are seldom better than the original but this Fridays display of puniness from the DOW came close. So I though I'd give it a try too.

" Daddy it's all right don't cry in the bathroom "

- those soothing words came from my boy who caught me moments after selling yet another looked like a good idea yesterday small cap out of the account. Ok I wasn't crying I was controlling my negativity which was large. But the greater point is- the market can do that- even to big strong men- put you right on your knees.
One man on his knees is one I don't care for
John Devaney, United Capital’s chief executive and a one-time master of the mortgage market. He was gloriously profiled last summer in the times and I almost threw up reading the piece. Anyway poor John has put his 142-foot Trinity yacht, dubbed "Positive Carry" on the market. This is the guy who hired the Counting Crows to play for his kids etc. He's a big South Florida blowhard- I think Jay Leno boned his wife or something. Jay was hired to perform a lewd act on her.. thanks to a wrong-way bet on the subprime mortgage market, his funds have gone underwater.

The great thing is check out this quote:

‘I personally hate subprime,'’ Mr. Devaney declared at an American Securitization Forum conference in late January, ‘’and I’m kind of hoping the whole thing explodes.'’ --The fool called it! And even he wasn't prepared for what's upon us.... Perhaps that should be a wake up call to all of us.

At the time of The Times article, Mr. Devaney had amassed a fortune of $250 million by becoming a major dealer in asset-backed bonds. His success in trading mobile home loans, credit card debt and airplane leases after the terrorist attacks of Sept. 11 had helped him make his mark. He got lucky profiting when others had panicked. This time he got tripped up. Oh for the Cezannes he has hanging everywhere! It's Rome all over again.

So far his funds at Horizon ABS have frozen investors and they claim to have enough to pay everyone back but why then the rush to hire lawyers? This one is still stewing...

Some other odd bits and pieces did anyone catch the Blackstone trades on Thurs?
As the stock market plummeted, driven in large part by fears about the debt markets, one stock in particular seemed to suffer badly: the Blackstone Group.

Units of Blackstone, the first of the giant private equity firms to go public, nosedive for much of the day, dipping as low as $23.27, down 8.8 percent from Wednesday’s close of $25.51, by mid-afternoon. But a mysterious frenzy of trades just before the market’s close helped erase the entire day’s losses and push the stock up to $25.70.

Starting in the last 10 minutes, a series of rapid-fire buy orders helped push up the stock’s price. Among them was a block trade of 114,000 units, which was one of the biggest trade of the day. The time? It was executed at 3:59:55 p.m.

what — or who — could have been behind this frenzied set of late buy orders. On the tape it read like a computer purge not real orders but they went through. Was Blackstone THEMSELVES BUYING to prop up the name? Does that give us a chance too next week?It could have been a major investor, confident that the buyout giant had hit a nadir and would make its way back up. But I doubt Warren Buffet was thinking about taking a flyer on them... Perhaps it was one of the underwriters, like Morgan Stanley or Citigroup, hoping to prop up one of their biggest offerings of the year.

What is clear is this: As of Thursday’s close, Blackstone’s stock was still down some 17 percent from its initial offering price of $31, in what Bloomberg News said was the worst I.P.O. of the year This " worst ipo of the year bit " did that get to them I wonder.... Anyway of course all this was overshadowed by Friday's mess and the stk quickly retreated nearly 7%.... Still let's remember that buying and see if it leads to anything.

As for this week my feeling is since energy cracked the losses look worse than they are.
There will be an attempt to stabilize the market especially in tech but jeez the Russell was down 7% for the week these numbers don't lie. ~ stoney
 
If you really want to scare the shit out of everyone put up the average bond charts, by classes. It's fun to see the usual flat line images cratering all over the place.
 
What do tops look like?

A top commonly looks like a roof, with indexes bumping up against it until they sag. Indexes hit a series of new highs, but over time fewer and fewer stocks join in. Big multinationals gradually take over leadership from the smaller, more-volatile stocks that typically lead a bull market's early stages.

Sentiment turns from fear to greed as investors push stocks too far. Stocks top out one by one, often with a small band of highly admired issues leading the gains, (APPLE) until there isn't enough strength left to hold the indexes up. This usually happens when interest rates are rising, pressuring businesses and consumers. Money managers, reluctant to sell for fear of missing out on more gains, get caught in the declines.

Do we have those conditions now?

Finding an answer is tricky. Tops aren't just the mirror image of a bottom. When stocks rebound from a bottom, as they did in 2002, they tend to surge. But when they fall from a top, they waver uncertainly, giving the appearance of a pause. We didn't do that we reversed at 14K and free fell>>The last time stocks topped out, in 2000, speculative technology stocks fell hard. But the Dow industrials declined very gradually, as did the Standard & Poor's 500-stock index and even the large tech stocks. It took months for analysts to agree a broad bear market was really at hand. This all HAPPENED TOO FAST- It's a " panic " not a Top.

Thanks in part to technical analysis, Steve Leuthold, who manages $3 billion as chairman of Leuthold Weeden Research in Minneapolis, stunned clients early last week by warning of impending trouble. Two days later came the Dow's combined plunge of 3.8%, or 519.60 points, on Thursday and Friday.

Mr. Leuthold sees a bear market at hand -- that is, a decline of 20% or more from the top.

Paul Desmond, president of Lowry's Reports in North Palm Beach, Fla., interprets the data differently. "If a person's hair has turned gray, it doesn't mean they are ready to pass on," says Mr. Desmond. The market has caught cold, he says, but "isn't showing the signs you would normally see if it were near death." He expects a rally in the next few days, and has advised clients that if it is broad and robust, they should begin buying again in anticipation that the market will recover.

The mixed signals have been frustrating for Phil Roth, chief technical market analyst at New York brokerage firm Miller Tabak + Co.( but not nearly as infuriating as sharing Jury Duty with the stonedinvestor as he did 4 years ago!~)
Of late he had taken note of accumulating warning signs. Even as the market rose, fewer stocks were continuing to reach new highs. The number of stocks trading above their average prices of the past 200 days was slipping. Utility and financial stocks were losing steam. The use of borrowed money for stock investments was hitting all-time highs.

Then, when the Dow crossed 14000 to hit its most recent record, Mr. Roth noted that many stocks in the broader market failed to rise. More trading was being done on falling prices, suggesting weakness.

He now fears that because so many investors put aside doubts to jump into stocks, and may now be looking for a way out, stocks could experience "a climax in the market" -- an even heavier dose of panic selling than investors have seen so far. He expects stocks to fall 10% -- which they haven't done since 2003 -- then put in a weak rebound before falling further. And he doesn't rule out the kind of collapse that occurred on October 19, 1987, when stocks fell 22.6% in one day, the biggest one-day decline ever. "I'm not saying it will happen again, but it could," Mr. Roth says.

Paul Desmond, of Lowry's, is skeptical that this is a bear market> A week ago he warned clients of the risk of a short-term decline, and he still thinks that is what this is. "We just don't have the signs you normally have at a market top," he says.

His research shows that, as the market forms its rooflike top, individual stocks slowly fall back despite the indexes' continuing gains. At almost all market tops starting in 1929, when the indexes finally were ready to fall into bear markets, the vast majority of stocks already had turned down, and many had fallen sharply.

But at the most recent market highs, a number of stock groups such as basic materials, energy and technology still were strong. While small stocks have faded, middle-size stocks are holding up better. Do we need another trip up then to record territory this one with less participation?

The year 1987 featured a September drop similar to last week's, followed by the October crash, But in 1987, less-prominent stocks had been slowly deteriorating for months before that, and that process hasn't advanced nearly as far this time. If this year is going to be an exception, with a bear market starting before this broad deterioration has taken place, Mr. Desmond says, it will become apparent in the coming days, as the bounce-back he expects would prove weak and disappointing.

>> That's kind of where I am at now with the expectation that a bounceback will be weak & disappointing. For sure now on the DOW near 50% of the stocks look not to be in uptrends anymore... the beginning of this flattening out that leads to tops appears to be happening...

What afternoon rally there was on Friday broke the down trend line, but was unable to sustain that break. As a result, instead of short covering going into the weekend, we saw an onslaught of selling as folks raised cash going into the weekend. Once we do break the DOWN trend convincingly we should expect a three to five day rally. Seeing prices move above about 1475 should crack the back of the decline, but the 1485 area is looking like a formidable resistance level. The NASD remains in a more constructive position thanks to its weighting in technology and lack of exposure to financial and energy related issues. It closed just below 2570 support but lower support at 2525 is likely to be tested early in the week.

Total breadth was 2550, up from the -2850 low of the day. **The key point is the indices closed at their lows of the days WHILE the internals were at improved levels at the end of the day. And, the internals indicate a reduced level of selling on Friday than Tuesday or Thursday. In short, the internals are showing a very SLIGHT divergence that indicates waning downside momentum. This isn't much for the bulls to work off, But it's the kind of small kernels of hope I look for and it is the first step in the recovery process. The hope is once the rebound gains traction, it could be extremely rapid and regain about half to two thirds of the decline over about a weeks time.

So back to that last hour Friday- did the market makers just step away and was that a fake plunge?- a phantom 100 point print like I believe we had once before this year? Or was it truly a capitulation phase of the current decline?... which if accurate, should mean that the selling pressure is at or near an end (if only temporarily)... ahead of a potent recovery rally...

~ stoney
 
Starting in the last 10 minutes, a series of rapid-fire buy orders helped push up the stock’s price. Among them was a block trade of 114,000 units, which was one of the biggest trade of the day. The time? It was executed at 3:59:55 p.m.

what — or who — could have been behind this frenzied set of late buy orders. On the tape it read like a computer purge not real orders but they went through. Was Blackstone THEMSELVES BUYING to prop up the name? Does that give us a chance too next week?It could have been a major investor, confident that the buyout giant had hit a nadir and would make its way back up. But I doubt Warren Buffet was thinking about taking a flyer on them... Perhaps it was one of the underwriters, like Morgan Stanley or Citigroup, hoping to prop up one of their biggest offerings of the year.
More...

Don't forget who owns a large stake in blackstone. Same country that is diversifying away from their us dollar reserves. I read somewhere earlier about speculation china was a major force propping up markets the last few months, with deep pockets to spend.
 
Relax Stoney. This is just a normal market correction. No need for 3 page essays. In 3 months we will look back at this like a great buying opportunity.

If your really worried then diversify into quality safehaven stocks like AMZN, RIMM, AAPL, BIDU, etc. One stock Im looking at is PRAA. I expect that to go higher from this selloff.

Look at AMZN today. Bad market conditions and a slam article from Barron's has not been able to knock it down.
 
It's not " normal " in my book because it is not based on either earnings slowdown or economy slowdown. Since it's appearance has been fear spread and debt based it is tough for the average investor to get his arms around the consequences. Also since a consequence is less M&A If entire sectors are ARTIFICIALLY inflated because of M&A then surely they will revert to the norm now. I have been so blindly untouched by this Private Equity taking over the world- not one of my companies has been swept up- maybe one harman but for the most part I have been largely unaffected by these ridiculous price moves in say the restaurant sector and I thought earnings were up at Saks 5th ave, that's why the stock price went up but what if the majority of other investors are betting on a takeover, what then when the carpet is yanked out? Good companies go down.

Bottom line whenever anything seems out of the norm it is and should be a warning not a celebration. Every monday deal after deal it was numbing it symbolized too much free cash and an out of control mentality that tilted this stonedinvestor into a bad place. At one time I had 20% cash waiting for the big one but as all good corrections do this one caught be relatively unprepared 11% or so cash and the main problem for me is >f I just don't agree with it's very premise- so it's tough to panic. Yet don't fight the tape the tape always wins. Good stocks get sold.

This non traditional correction opens other doors of queries as well. namely who is going to make out here? Citidal no doubt, conservative PE players are going to take some pennies on the dollar debt in some damn good companies, they've got to be salivating at the banks predicament... Does all of this tilt the fed?

Indeed Michael this correction is so unlike a normal corrections it may have a very unusual outcome on the upside as well. Repricing Risk. How much risk was in the S&P? How do you measure risk? This is ethereal stuff. ~ stoney
 
Another problem I fear is this is update season for Hedge funds to their investors and one we know Sowood Capital Management might be in trouble.
The NY Times reported Sat that the $3 Billion fund is down 10%. Scarily the fund was up 1.5% as recently as March. And their own marketing documents say that their structured credit risk is only 15% of the portfolio...
so where did the other losses come from. Is this spreading from sub prime.

It would be easy to write off these guys but they are a couple of fancy pants harvard (I assume Quants) Harvard in fact seeded the fund. What happens if Harvard returns tail at down 15% and decides to pull it's support and what of freezing accounts after investors redeem 25% of their assets? Messy.
 
What's amazing Dude is the next day it comes true!

>
Sowood Capital Management, a hedge fund with $3 billion in assets in June, said that more than half of the fund's value had evaporated with losses in the corporate credit market, and that the remaining $1.5 billion would be liquidated and returned to investors. (The New York Times, free registration required) Sowood said that the sale of assets, to Citadel Investment Group, allowed it to avoid "forced sales at extreme prices." (MarketWatch) "It's mind-boggling," said Bradley Alford of Alpha Capital Management in Atlanta. "This last week, the velocity of losses has picked up dramatically." (Bloomberg)

> What's impressive is not only did I point out the 1st fund to go under but the buyer of the assetts too (Citidal) That's a nice blogstain or whatever they call it!
 
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