Sunday, April 18, 2010

Some Bits and Pieces

I have several things that I have been thinking about none of which needs a full blog, but yet important enough to be mentioned.
So lets get started:
S&P 500 Busted or Resting?
The S&P 500 has a significant support level broken with the decline on Friday. We needed the S&P 500 to hold the 1196 level however the S&P 500 closed at 1192 below the support level. It is difficult to tell if this is a one-day wonder or the start of a significant correction of a market that is very overbought. As you know I thought the S&P 500 could go to 1225 before a correction would set in, and take the market down. We got close to 1225 on Thursday and then we had the Goldman sell off on Friday. In my e-mail to my clients on Friday I raised the question as to whether Goldman was the only player involved.  In the Sunday New York Times there was an article raising the question about Goldman being the only one involved. In addition the article indicated that Goldman was aware of the charge 9 months ago from a “Wells Notice” by the SEC.  

Was Friday the reason traders were looking for to cash in or the catalyst for the much-anticipated correction? The first 3 days this week will tell us if we broke the upside momentum and started to the down side or that Friday was a “buy the dip” opportunity the people who were not in the market missed to get more money in the market.

“Difference Between the Titians” PIMCO vs. Blackrock on Interest Rates

Several weeks ago I wrote to you about the difference between the Titans, PIMCO and Blackrock and their opinions on the purchase of the 10-year T-Bond. At the time of this disagreement the yield on the 10-year was 4.03% to give you a reference point. Bill Gross, “The Bond King” of PIMCO felt that this was the wrong time to take a position in the bond and that he felt interest rates was going to go higher.

On the other side, Blackrock, the largest private money manager in the world, went the other way. They were less concerned about, the things PIMCO was worried about, namely, inflation, exploding budgets and the increasing amount of debt being issued. So, here we are about 3 weeks later and as of now the yield on the 10-year is 3.76%. At least for the short-term Blackrock seems to be right—for if you followed their advice you are up substantial.

We had on Thursday initial jobless claims up 44,000 above forecast. More telling for the direction of interest rates was the continuing claims increased by 73,000. I can’t come up with a logical reason why the Fed should move interest rates up. The above jobs data does not justify any movement in interest rates. Perhaps the decline on Friday was more about the economic outlook than Goldman. For now I’m on the Blackrock side of the table on interest rates.

Things might still be getting worse for consumers.

Federal courts reported over 158,000 bankruptcy filings in March, or 6,900 a day, a rise of 35 percent from February, and 75% appear to come from chapter 7 bankruptcies, according to a report to be released on Friday by Automated Access to Court Electronic Records, a data collection company known as Aacer. Filings were up 19 percent over March 2009. The previous record over the last five years was 133,000 in October. Mike Bickford, president of Aacer, said, “Even with the restrictive new law, we’re back up over where we were before the law changed.”

Goldman May Not Be As Golden

Some of the old issues are back on the table again, Trust, Transparency. Based on the charges by the SEC Goldman new that the mortgage-backed securities they were selling to their clients had little chance of succeeding. The allegations are that Goldman willingly sold these mortgages knowing that Paulson & Co. one of their clients was betting against the success of these mortgages. We now know that Goldman had a Wells Notice from the SEC at least 6 to 9 months ago and did not disclose it to the public.

While all the headlines dealt with the fraud chargers another problem may be brewing for Goldman. “The Other Big Goldman Story: Insider Tips From a Director?” The Wall Street Journal is looking into a charge that a Goldman Director leaked insider information to a hedge fund manager who used it to his and Goldman’s advantage.

In this environment, because of the lack of transparency, you don’t know if the brokerage firm knows something that you don’t know. A lot of people seem to be convinced that with all the reforms Wall Street was cleaned up, but perhaps we need a different street sweeper.

The Congress is debating Financial Industry reform at this very moment and I think that stories like the Goldman story and who knows what else may push the reform to far.

Dan Perkins