Secrets of Traders Blog

Dear Trader

Stocks were crushed today - all of them. Why was that you wonder? To be sure, there are many reasons, but surely at the top of the list must be the Federal Reserve. Bernanke and company decided to keep Wall Street happy at the expense of Main Street . The FOMC voted to ignore commodity inflation and the US dollar yesterday, which ignited further rallies (especially in oil) in the commodity sector that weighed on equities. Thanks Ben.

Were you shocked by today's decline? If so, why? Oil is skyrocketing for a variety of reasons, one of which is the weakness in the US dollar. So when the FOMC chose to do nothing yesterday, the oil buyers came back to the market with a vengeance right at the open. Oil closed up $5.34, trading over $140.00-barrel at one point. The Fed could have crushed the speculators yesterday with just a quarter point hike and the threat of further hikes; however, Ben chose to speculate himself - with YOUR money - and did nothing. I say he speculated with your money because his lack of action will cost you more at the pump, and in your retirement accounts. Across America IRAs & 401k's are losing money as they are beaten down by commodity inflation - especially today with a Dow close of -358.41! Thanks again Ben.

The US dollar was hammered against most currencies.

Gold closed up $33.20-ounce.

Oil closed near $140-barrel.

Corn closed +3.01%.

You da' man Ben! Thanks for nothing!

Well we saw it coming a mile away. The Fed dropped the ball yesterday putting in motion today's stock market declines that we took advantage of in a big way. Now that the Dow's major support level was easily breached, we should see a quick drop to 10,900, which could be short-lived. I do not see decent support until the Dow reaches 10,000, then 9,000 under that.

The trend is DOWN as I have been saying for MONTHS. If you are not short, you should at least be (mostly) in cash. We don't drink the government Kool-Aid here at Secrets of Traders folks. We certainly do not drink Wall Street's Kool-Aid either. They can't BS us. If we drink any Kool-Aid, it's going to be served with vodka and a nice cigar - not heaping amounts of nonsense and drivel.

We follow the trend. Analysts don't care about you or your money. CEO's don't care about you. The Federal Reserve doesn't care about you, you're not a Wall Street elitist! Well, we care about you, and that's why we keep hammering that you should do the following...

1) Turn off Cramer!

2) Stop listening to your broker unless he/she is objective.

3) Stop believing analyst recommendations.

4) Stop believing the HYPE.

5) Stop waiting for the Fed or Congress to "do something."

6) Start taking control of your own finances.

7) Start FOLLOWING THE TREND!

8) Buy & Hold? Plffffftt! General Motors traded at a new 53-YEAR LOW today!

9) Want more proof of #3? Goldman Sachs just downgraded GM to a sell - today. Good timing boys.

Today's Trading Tip:

"We don't drink the government Kool-Aid here at Secrets of Traders folks!!!"
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Posted by Larry Levin at 5:11 PM | Permalink | Comments (0) | TrackBacks (0)

Dear Trader,

If there were any doubts that equities are in a bear market, which of course was a rampant debate on Wall Street, last week's 465-point Dow decline should end the debate. However, since The Street is engorged with value buyers (read: panicked long-only money managers), the debate will surely continue regardless of the swift decline. I'm guessing the Dow will need to close below 11,000 for the perma-bulls to even consider a bear market. In my opinion, a savvy investor follows the trend.

Friday's boot-stomping was a delayed reaction to both the Citigroup mea-culpa and the further downgrades of MBIA and Ambac.

Moody's Investors Service cut MBIA to A2 from Aaa late Thursday, which was a two-notch downgrade and bigger than some investors expected. The ratings agency also lowered Ambac Financial to Aa3 from Aaa. But they didn't stop there; Moody's also cut the bond insurance subsidiaries of FGIC Corp. and Security Capital Assurance to junk status after markets closed on Friday. It has been estimated that these insurance companies indemnify more than $1-trillion of securities.

As you can imagine, when they're downgraded all the securities they back get downgraded as well, potentially meaning a deleterious domino-effect for investment banks and other financial institutions that bought guarantees from bond insurers to hedge mortgage-backed securities and CDOs.

The major ratings agencies have apparently just seen the light. There are others, however, who have nor been fooled by anything. Egan-Jones Ratings is one of these other firms. On Friday it said, With the rating cuts by most firms, new business is highly problematic and MBIA's future is doubtful. This rival agency, which is paid by investors rather than issuing firm like Citigroup or Merrill Lynch, has a C rating on MBIA, which is well into non-investment grade, or junk, status.

It seems to me that several markets need to reverse course to get equities back on their feet; oil and inflation (commodities in general) need to fall and the US dollar needs to make a sustained rally. The only way this could happen is if the Fed started a new policy by raising interest rates at next weeks FOMC meeting. Does anyone really think that is likely to happen? I don't.

Today's Trading Tip:
"Bear Markets Are supposed To Be Taken Advantage of by Futures Traders!!!"
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Posted by Larry Levin at 10:31 AM | Permalink | Comments (0) | TrackBacks (0)

Dear Trader,

There was another avalanche of dire news this morning, especially from Citigroup, but today was all about oil. With oil dropping $4.75-barrel, the stock market was able to ignore the latest round of bad information (bearish news seems to be in a trend, doesn't it?) and finish up across the board. The market cheered the news from China , but I say: Be careful what you wish for!

Portfolio managers across the country hit the buy button often when it was known that China was increasing fuel costs by 18% to due its part in decreasing demand for oil. Up to now, China had been subsidizing oil for all of its citizens, which had produced a much greater demand than would otherwise be there. This news knocked oil back by $4.75-barrel which is good news indeed, but did you think of anything else when you read that headline? I did.

I immediately thought that these citizens will demand, and receive, a raise to cover this instant cost of living increase. This will surely be added on to the cost of each widget that is manufactured in China , which will then be shipped to the USA by the ton. That's right folks; this so-called great news just means the US will be importing another 18% inflation spike from China very soon.

But wait, there's more! Will lower oil fix the banking system? No. Will lower oil fix the housing market? No. Will lower oil affect oil stocks? You betcha! An oil correction of $20 or even $40 dollars a barrel won't affect much in terms of gasoline prices and overall inflation, but it sure will affect what is perhaps the last leg holding up the folding chair known as the US equity market: it could fold quick-like. The last remaining play, or story, that has any traction is that of buying energy stocks and commodity stocks. If these fold, you too will be thinking Be careful what you wish for!

But wait, there's more! I listed a bunch of other news below, all coming out today.

6/19 Citigroup's Crittenden Sees More Subprime Writedowns Bloomberg
6/19 Fall-out from bad loans rock regional banks New York Times
6/19 Circuit City posts loss, suspends dividend Reuters
6/19 Gold futures rise as dollar trades mixed MarketWatch
6/19 It's a nightmare across the board in Florida Housing Bubble
6/19 Triad will stop issuing mortgages as talks collapse Bloomberg
6/19 Inflation: Prepare for the worst Times Online
6/19 China stocks falls 6% today, off 55% from high Bloomberg
6/19 Oil output shuttered in Nigeria - CNBC
6/19 Fed governor says home loan losses will substantially increase CNBC
6/19 Toll Brothers CEO says housing 33% worse than gov't reports - CNBC

Until today, Citigroup apparently didn't think it was necessary to tell anyone the truth about its business. That said, I don't believe this is the whole truth. Now do you understand why I call investors in these firms suckers? Citigroup's CFO Gary Crittenden said this morning that the bank faces continuing credit problems in the second quarter, with credit costs rising, provisions for bad consumer loans growing and substantial write-downs for subprime assets likely.

Stop me if you've heard this one before: The credit crisis is over. AAAhahahahahaaaaaa! Yeah right.

But wait, there's more! Guess who else doesn't believe that claptrap? None other than John Paulson, the man who made his clients about $30-billion shorting the subprime slime from the likes of Citigroup. I might believe him over the obfuscating lowlifes at the major banks. Anyhow, Mr. Paulson said global write downs and losses from the credit crisis may reach $1.3-TRILLION, exceeding even the International Monetary Fund's $945 billion estimate.

We're only about a third of the way through the write-down's, said Paulson at the GAIM International hedge fund conference in Monaco yesterday. There are a lot of problems out there and it will continue to be felt through the year. We don't see any signs of stabilizing.

The U.S. is heading into a recession as falling home prices weigh on consumer spending, Paulson said. The second half of this year will be worse than the first as the economic slowdown spills into 2009. Signs of stress are accelerating in the housing market, and he's betting on falling securities prices, he said.

When asked by someone in the crowd why he was such a curmudgeon he said, I don't consider myself a bull or a bear. I'm a realist.

So you have a choice; you can believe a very successful hedge fund manager who has already profited handsomely from what the bankers apparently didn't see, or you can keep on believing the trained circus-monkeys (analysts & CEOs) at these same banks that didn't see a crisis coming in the first place. How is it that they didn't see the crisis coming, yet now they can see everything perfectly ' the problems are behind us, they say to wit I politely reply, whatever!

Today's Trading Tip:
"Once You Get Into A Winning Rhythm, Keep It Going As Long As You Can!!!"
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Posted by Larry Levin at 10:53 AM | Permalink | Comments (0) | TrackBacks (0)

Government bean counters and Wall Street analysts have been telling us there is no inflation, look at the core, they say. Not until headline inflation spills over into the core will it matter. Until then investors should ignore it, they say. Today is further evidence that headline inflation is not only spilling over, it is backed up and flooding the house of cards. What planet do these analysts and BLS statisticians live on anyhow? Cause it ain't Earth.

If you are invested in a company like FedEx (there are others) and chose to ignore skyrocketing fuel costs, while listening to the resident inflation-apologist at your Wall Street brokerage firm, you played a dangerous game of chicken" and lost. FDX is down about 31% from its high in 2007; however, 20% of that drop came within the last 6-weeks. Of course the most recent drop came today with Fed's 4th quarter loss, which was blamed on rising fuel costs.

So how does your analyst square his statements that headline inflation is irrelevant, with the reality that fuel costs are indeed spreading to your brokerage account? Or to put a fine point on it, it is costing you money at the pump, at the grocery store, and now in your brokerage account. The next time that analyst tells you headline inflation is irrelevant until it reaches the core you should tell him to either pay you for your losses in FDX or SHUT UP!

Stocks were also driven lower by the banking sector today yes, the banking sector. I know it sounds like a repeat, but today was a little different. Instead of hearing bad news from one of the behemoth investment banks, today's news was came from a regional bank: the cancerous credit/housing crisis has spread. If you are surprised by this, you must be living on the same planet as the BLS statisticians, Wall Street portfolio managers, and that annoying Pollyanna neighbor down the block. Man is that guy irritating!

Shares of Fifth Third Bancorp plummeted nearly 18% at one point this morning, selling off in the wake of the company announcing a reduction in its dividend and plan to raise $2 billion in new capital from convertible preferred shares and the sale of non-core assets. Officials at the bank said they do not expect conditions to improve any time soon. Wow, now that's an inspiring statement to make to us potential suckers, er ahh, potential investors for the $2-billion offering.

In a similar vein, Goldman Sachs analysts on Tuesday predicted U.S. banks may need to raise an additional $65 billion in capital as they grapple with further write-downs and asset depreciation. And these banks better get that money while the suckers last; excuse me again, while there are enough investors out there with money to throw around. Then again, maybe these suckers are brilliant for they may own the entire US banking system before we know it.

Since I mentioned analysts earlier, I have to mention this guy. An analyst named Peter Winter (I didn't read which bank employed this thought-challenged fellow) cut his price target to $16 from $25 and downgraded Fifth Third to market perform from outperform. Ahhhahahahahaaaa, he just DOWNGRADED this pig from outperform to market perform today. Oh my God, no wonder these banks are in so much trouble! Take a look at the FITB chart and tell me if a market outperform should have been held on this stock until today? Downgrading a stock from market outperform rating after it LOST 87% of its value is moronic and downright sickening.

Since that is probably closer to a bottom than a place to sell out, I would fire his ass tomorrow morning. Then again, I would have recommended shorting FITB months ago, so firing this guy should go without saying.

Listen to analysts at your own peril: they don't give a damn about you or your money. If they did, how could Mr. Winter and 99% of his peers be so incompetent?

Today's Trading Tip:
"Staying with the Trend Will Always Get You Ahead in the Game!!!"
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Posted by Larry Levin at 11:48 AM | Permalink | Comments (0) | TrackBacks (0)

Inflationary data just keeps rolling in higher. Today's PPI data was no exception coming in at a staggering 1.4% headline number, while the core was, oh who cares. By the way, that 1.4% monthly figure was also a seasonally adjusted number. Said another way, it would have been higher if our friends at the Bureau of Labor & Statistics (BLS) didn't massage the figures. If you believe this core number send me an email, I have some old stuff in the basement that I want to sell as new and I'm looking for suckers who will believe anything and everything.

Yes sir, wholesale prices skyrocketed while housing and industrial activity continued to tail off, giving us a blend of high-costs and slow growth. I'm guessing that this cements the notion that the Federal Reserve's next move on interest rates will be no move whatsoever. We find out next week.

BREAKING NEWS: Smoke seen rising from the top of Labor Department building. Fire Department says likely cause is cooking of the inflation books; there is no need to panic.

As mentioned above, U.S. wholesale prices spiked 1.4% in May, after seasonal adjustments, with energy prices gaining 4.9% and food prices rising 0.8%. In the past year, the (PPI) producer price index, which tracks inflation at the wholesale level, gained 7.2%, the government said. Economists had been expecting the headline number to be .9%, which underscores the notion that economist??¢€™s expectations are worthless. Once again they were off by a large margin of 50%.

As prices in May for finished consumer foods rose, prices for pork gained 8%, the largest change since 1999, and prices for fresh fruits and melons rose 5.9%. Further back in the production pipeline, prices for intermediate goods gained 2.9% in May. The core intermediate PPI, considered a key leading indicator of inflation, gained 2.0% in May, the largest change since early 1980!

Pipeline inflation pressures may mean that the BS from the BLS regarding core PPI may be coming to an end. That is, until they find a new way to lie to you.

The Federal Reserve reported that industrial production fell 0.2% in May, the second straight monthly decline and the third time in four months. Plants operated at only a 79.4% capacity, the lowest since September 2005 after the Gulf Coast hurricanes.

The number of new housing projects started in May fell 3.3%, the lowest in 17 years, as builders pulled back further. Builders are dealing with the level of unsold and foreclosed homes piling up, adding to already swollen supply. Falling demand from would-be buyers and rising mortgage rates are adding to builder headaches.

Today's Trading Tip:
"Make Sure You Get Educated From A Reliable, Credible Trading Educator!!!"
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Posted by Larry Levin at 2:46 PM | Permalink | Comments (0) | TrackBacks (0)

The markets ended a wild week with huge gains Friday. The explosion higher began with the main data figures Friday showing the CPI at just .2% (yeah right!) and consumer sentiment tumbling to a 28-year low.

Many of the economists quoted last Friday, all of which have drank the government kool-aid, said things like, "See, this proves that high energy and food prices are not spilling into other areas of the economy." Really? Dow Chemical raised its prices by a whopping 20% to cover its exploding food and energy cost increases and airlines are charging $15 for every bag checked to cover fuel cost increases. That sure sounds like it is spilling into other areas of the economy to me. By the way, the headline inflation data was 6%, which is an annual rate of 7.2%!

What's more, price increases may have just begun. Devastating floods in Iowa and torrential rain in other Midwestern states have taken a heavy toll on crops, throwing the door wide open to higher costs on the farm and soon to be in a supermarket near you.

Hardest hit is corn and soybeans from some of the country's top-producing states, Iowa , Illinois , Nebraska , Wisconsin and Minnesota . Both grains are at the foundation of the food pyramid, used extensively as primary ingredients and as livestock feed.

This could deplete as much as 3.5% of U.S. corn projected to be planted this year, based on the latest crop estimates from the U.S. Agriculture Department. "We're looking at very serious reductions," analysts are saying.

"The current situation is very unusual and represents one of the worst cases of flooding in history across the mid corn-belt during the development of the crop," a Citigroup analyst said.

I personally witnessed this flooding disaster up close. I was in Wisconsin Saturday evening for a niece's birthday party, which happened to be located on a farm. As I looked out into the field I only saw a little standing water. However, when my brother-in-law told me to look beyond the tree line at the other farm, I said "what farm? That's a lake." A river bank had broken down and flooded a 5,000-acre farm under 8-feet of water. We took his golf cart for a ride out to the tree line so I could get a closer look, and it was amazing. What was once a massive corn field now looked like Lake Geneva .

As we drove back on the edge of the corn field that was directly behind the party, we tried to detour to another part of the un-flooded field so I could see the sand bagging that they had been doing the prior evening. As we got closer, however, we had to stop because the ground was just too wet. A few minutes after we got back to the party we saw the farmer (Tony) drive up on his golf cart. Over a quick beer he told us that he was going back for a little more sand bagging and then was quitting for the evening. Tony said he raises more corn on higher ground so even if his field flooded behind my brother-in-law's house; he may still be able to break-even for the year. Of course, he didn't want that to happen. But as he finished his beer and looked up at the sky he said, "By the looks of these clouds I don't think those bags will hold. I may lose the whole field."

Sadly, I was told this morning that Tony's field did flood. His fields, as well as the corporate farm's 5,000-acre field, are total losses.

This, along with other factors, such as exorbitant energy prices, will play of role in pushing food prices at grocery stores to even loftier levels. In 2007, retail food prices jumped 4%, the biggest annual spike in 18-years. Moreover, the USDA projects retail food prices to shoot up at least another 4% this year. Thank God this isn't inflationary though...pfheeew!

Today's Trading Tip:
"Stop Loss Orders Are Your Best Friend!!"
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Posted by Larry Levin at 12:25 PM | Permalink | Comments (0) | TrackBacks (0)

After a vicious tug-of-war throughout the day, stocks finished mostly lower. On the bullish side of the rope were lower oil prices, while the other side was being pulled by Bernanke's inflation comments.

For the first time in a long time equity investors were told by the chairman of the Fed that he may need to raise interest rates to combat inflation. His remarks raised expectations that the central bank might hike interest rates later this year to curb inflation; more expensive borrowing could jeopardize an economic rebound. That said, I was wondering if Bernanke actually has the stuff to pull it off. Was his comment just rhetoric to support the dollar? Is Bernanke now doing the job of the Treasury?

But not everyone believes it's just rhetoric, not yet anyhow. "The concern for investors is that the Fed has now confirmed a shift in focus toward fighting inflation, said Ken Tower , market strategist at Covered Bridge Tactical. "The question now becomes when (not if) they will begin raising interest rates. That suggests there will be no further steps to bolster economic growth. The economy is on its own.

Imagine that for the first time in decades the economy will be on its own, to sink or swim without the lifeboat of the Federal Reserve there to save it. Well, I just don't believe that yet because when Wall Street whines loud enough, the Fed will surely go back to what works best: Jump you say? How high?

There something of a tug-of-war between inflationary and deflationary forces as well. Traders remain concerned that high energy prices will not just aggravate inflation, but also slow consumer spending, which slows economic growth, which is deflationary.

"If you bet against the consumer over the past several years, you would've been wrong. The consumer has held up surprisingly well. However, at some point there is a breaking point. I think some people believe we may be approaching that,said Chris Colarik, a portfolio manager at Glenmede Investment Management in Philadelphia .

Today's Trading Tip:
"When it comes to long term investing, don't count out the consumer (Hint: Wal-Mart, RIM, Apple, etc)!!!"
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Posted by Larry Levin at 10:33 AM | Permalink | Comments (0) | TrackBacks (0)

The market staggered today as it was the recipient of another one-two punch from inflation in the form of oil and the PPI. What’s surprising, however, is that the market bothered to get in the ring with inflation: Until now it has simply ignored the challenge. Since it’s so much easier to ignore a problem than to face it head on, the market has a high probability of regaining its lost ground tomorrow. “I can't think about that right now. If I do, I'll go crazy. I'll think about that tomorrow.” – Scarlett O’Hara

The Europeans have a different tactic with respect to inflation, which is to face it head-on. Unlike Americans, Europeans have a long memory and the ravages of the Weimar Republic hyperinflation hasn’t faded from their memoirs as of yet. The US dollar fell hard against the Euro today after Germany 's statistical agency reported a stronger-than-expected 5.2% annual rise in April producer price inflation, beating expectations for a reading of 4.7% after a 4.2% annual jump in March.

Given this news, the ECB said its next move may actually be to RAISE interest rates. Wow, Europe is an odd place compared to Washington DC and Wall Street: It not only includes things that climb in price in its inflation measures, it actually reacts to them. And even though our European friends do not participate in the “Inflation Con-Job” that I wrote about a few days ago, it still enjoys a rising stock market and a healthy economy; two things that are feared would go away if the U.S. also included escalating prices in its inflation measures.

I know this will sound like a broken record, but here goes: Oil surged to another never-before-seen-in-human-history record of $129.60 a barrel. It was spurred on with bullish calls by investments banks, supply concerns, and of course weakness in the dollar. I have a hunch that $130.00 will bring in the profit takers and maybe a few brave short sellers. After a slight correction, however, oil will march higher to $150.00-barrel as T.Boone Pickens suggested today.

Before the market opened, inflation concerns were fueled by the PPI report that showed wholesale prices outside of food and energy rose the most in about 17 years. Core producer prices, which exclude food and energy, rose a higher-than-expected 0.4% in April, or 3% year-on-year…the fastest rise since late 1991.

This morning Home Depot said its profit dropped 66% and said the housing and home improvement markets remained difficult in the first quarter. “In fact, conditions worsened in many areas of the country,” CEO Frank Blake said. HD fell 5.2% on the news. It’s too bad HD didn’t release this news a few weeks ago because if it had, its stock would have been bid up at least 10%. Are times changing?

Another idiot Senator was on TV today telling us how he is prepared to regulate something he doesn’t like: rising oil prices. Joe Lieberman says speculators have everything to do with the high cost of oil and he wants to stop you from buying it. There isn’t much that needs to be said other than he is a moron for wanting to retard a free market. Speculators are not the problem.

Never once while spewing this drivel did he mention the Federal Reserve debasing the US dollar to the level of toilet paper, nor the outrageous debt the Congress has run up (both affecting the value of the dollar), nor the fact that the “green types” would rather you pay $130-barrel for oil than allow us to drill for it in our own country.

Naaaaah, it’s Jim Smith’s fault because he’s long a one-lot of July crude oil in a $5,000 brokerage account. NOT! Senator Lieberman – you sir, are a glittering jewel of colossal ignorance! How is it that those among us with IQ’s of 72 become Senators of this country?

Today's Trading Tip:
"If You Are an Up and Coming Trader, Look For Consistency, Not Necessarily Big Profits!!!"
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Posted by Larry Levin at 5:13 PM | Permalink | Comments (0) | TrackBacks (0)

Up is down and down is up. Minus 10 is actually +10. Good is bad, and really bad is not just good…it’s great. Witness the reaction to the horrendous results of Fannie Mae and D.R. Horton. But it doesn’t matter much if you excuse this, and ignore that…down is up and bad is good. Yep, The Street has more excuses than Rosie O’Donnell’s make-up artist.

Fannie Mae surprised everyone with a tremendously poor “earnings” result. Fannie said today that the steeper slide in home prices is accelerating the pace of foreclosures, which is hurting its business and responsible for its $2.2-BILLION first quarter loss. Right is left and North is South…Fannie Mae rallied for a gain of +8.91%.

In 2007 Fannie Mae expected to lose money on about four of every 1,000 mortgages it held on its $3-trillion book. Today Fannie says that it expects to lose money on 16 of those mortgages, a four-fold increase. Moreover, Fannie said it is slashing its dividend (again) and raising $6-billion (totaling $13-billion in less than 6-months) thereby further diluting the current shareholders value.

In response to the gross mismanagement of this quasi-governmental institution, big brother (OFHEO) rewarded Fannie Mae with a big prize: FNM can lower…yes reduce…its capital surplus from 20% to 15%. Similar to giving a junkie another fix, OFHEO went even further saying that it will reduce FNM’s capital surplus to just 10% if the accounting-challenged firm (you didn’t forget that did you?) kept its nose clean for a few months.

Here’s the “interesting” part (read scary part): Fannie Mae and Freddie Mac are now handling more than 80% of all new loans and combined they have about $80-billion to service their colossal $5-TRILLION in debt and other commitments. What happens if home prices continue to slide? I guess OFHEO doesn’t care, because it is allowing FNM to reduce its capital by enormous amounts. For the time being Wall Street is through with 30-1 leverage…but the government is just fine with FNM and FRE handling 60-1 leverage…and increasing.

Freddie Mac announces its results next week so surely we’ll get more interesting news.

If Fannie or Freddie were to fail because of this leverage, taxpayers will be bailing them out at a staggering cost. It will be another blunder you never voted for, nor ever received a profit from when these companies were making money. But no matter, we’ll just take another one for the team without complaint…as always. The government knows what’s good for us – say the lemmings.

“We’ve taken tremendous risks by loosening these companies’ purse strings,” said Senator Mel Martinez, Republican of Florida and a former secretary of housing and urban development. “They could cause an economy-wide meltdown if they got into real trouble and leave the public on the hook for billions.” On the hook for billions Senator? Try hundreds of billions, maybe more!

One of the nation's largest home builders, D.R. Horton Inc., reported a staggering $1.3-billion quarterly loss this morning, as housing weakness and turmoil in mortgage markets continued to drain its financial results.

Analysts polled by Thomson Financial had been looking for a loss of 39-cents a share on revenue of $1.36 billion, on average. But DHI surprised with a stunning $4.14-share loss. Last quarter DHI posted a $51.7-million gain, and let’s assume that that has been the average for some time now. Today’s loss of $1.36-billion would then wipe away 6-YEARS of profits…in just three months. For this stellar performance, much like FNM, its share price was rewarded with a large +5.5% gain by the close.

Swiss Banking giant UBS also reported horrendous earnings today. UBS lost nearly $11-billion last quarter. For this mind-bogglingly large loss in just 3-months, UBS shares closed down a teensy-weensy 54-cents.

And last but not least is oil. It made yet another new all-time high by trading above $122.00-barrel today. Goldman Sachs says a “super-spike” could get oil up to $200-barrel rather soon. Hello $5.00-gallon gasoline!

Like I said at the beginning, Wall Street has all kinds of excuses why the market rewarded these companies today – just like it had no problem with liar loans and garbage CDO’s, etc. Like the problems that led to the credit-crunch, the rewards handed out today just don’t “pass the smell test.”

Trade well and follow the trend, not the so-called “experts.” When you do you will be buying on days like today, regardless of the news.

Today's Trading Tip:
"The Most Important Thing A Trader Can Think About is the Risk!!!"
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Posted by Larry Levin at 10:00 AM | Permalink | Comments (0) | TrackBacks (0)

There was more than one reason for today’s pullback on the major indices. Microsoft is walking away from the Yahoo merger. Bank of America may be walking away from the Countrywide purchase. Oil exploded to new highs and GM’s share price was pummeled today following another strike.

Workers represented by the United Auto Workers went on strike Monday at a Fairfax, Kan. General Motors Corp. plant that makes the automaker's popular Chevy Malibu. It is the second strike by a UAW local against G.M. this spring after a decade without any plant work stoppages. Workers at a G.M. plant that builds fast-selling crossover vehicles near Lansing , Mich. , have been on strike for nearly three weeks. Together, the plants employ about 4,500 people. GM closed down 3.6% today – leading the Dow lower.

Also weighing on the Dow, shares of Bank of America fell 2.1% after Friedman Billings Ramsey & Co. analyst Paul Miller said the bank was likely to negotiate a sharply lower price for Countrywide but should just consider walking away, as Countrywide's loan portfolio “will prove a drag on earnings.” This news, along with the breakup of MSFT and YHOO put a damper on the new M&A euphoria.

Over the weekend came word that Microsoft would no longer pursue Yahoo, as well as any hostile takeover action, after concluding that Yahoo would likely respond with actions that would make the buyout “undesirable.” “After careful consideration, we believe the economics demanded by Yahoo do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal,” Microsoft CEO Steve Ballmer said in the statement.

After three-months of courting, the relationship is over. Yahoo's board of directors rejected the deal, saying the offer undervalued the company's business even after Microsoft offered to raise its bid from $31 per share to $33, or a gross amount of approximately $5 billion. Yahoo co-founder and CEO Jerry Yang believes the price should be $37 per share.

Hmmm, my chart tells me that before Microsoft offered to buy YHOO, the market though it was only worth about $19.00-share. And Yahoo just might slide back to that original level of around $19, which could expose the company to shareholder lawsuits for failing to secure a deal with Microsoft. In fact, this afternoon a move was already made to replace the board of directors!

This sounds to me like a has-been is still reliving its old life as if it were still here today. Somebody better tell the overweight ex-beauty queen (YHOO) that she better sprint back to that alter. The glory days are over and she better deal with the hear-and-now.

Another jump in oil prices raised concerns that inflation could force consumers to cut their spending on discretionary items. Crude oil futures for June delivery surged to a new trading high of $120.21 a barrel on the NYMEX before pulling back. The jump followed news of an attack on a Nigerian oil facility. Hello $4.00-gallon gasoline!

Unfortunately, all of this news couldn’t move the market much. Although the indices closed lower, the majority of the day was as dead as a doornail and not a good trend lower.

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Posted by Larry Levin at 5:06 PM | Permalink | Comments (0) | TrackBacks (0)