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#1 wndysrf

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Posted 10 March 2003 - 05:01 PM

Mark’s Market Commentary – March 10, 2003

First things first. An apology is in order for those of you which I unloaded on over the weekend. Especially Brian4. Anyway, another new record number of hits over the weekend.
…………………………

Los Angeles is the fraud capital of the world. No other city has so many people who will tell endless lies in order to get what they want. The starlets promising exotic behavior in exchange for a starring role. The guys pretending to be “all that in Hollywood” with boundless connections in order to seduce the wannabe starlets.

Its ongoing, the same lies told over and over. New lies made up yearly, but essentially say the same thing.

Cheat Street is no different. Buddha’s favorite firm, Merry Lynching has been up to some more lies.

Fleecing investors with IPO spinning, repeated stock anal cyst jamming, over 100 proprietary funds and partnerships with astronomical loads and expense ratios. Remember the Merrill Lynch Internet Fund launched in March of 2000? One lie after another, generated by The Financial Superstore.

From Gretchen Morgenson at The New York Times:

Merrill executives bragged that it could allow clients to tap into "the industry's broadest array of best-in-class products and services accessible through a single point of contact."
One of the firm's strongest pushes has been in mortgage lending. Since it entered the business a decade ago, Merrill has originated more than $20 billion in jumbo mortgages — those over $250,000 — making it the nation's seventh-largest mortgage originator. "By working with a financial adviser who looks at your mortgage and other liabilities within the context of your whole financial picture, you have the opportunity to make all of your money work to its fullest potential," Merrill's Web site states.

A popular product at Merrill is Mortgage 100, which allows a customer to finance 100 percent of a home's value by pledging eligible securities like stocks or bonds.

MaryEster Burnham was a Microsoft employee who accumulated plenty of stock options since 1991. She needed advice as to what to do with them.

“Ms. Burnham had never invested in the stock market before and held nothing but the company's shares in her account.”

Enter Tony Soprano-style Joseph DiDomenico, the Merry Lynching broker.

“Mr. DiDomenico, her broker, advised her in May 1999 to exercise her 100,000 options and hold on to the shares, predicting that they would rise in value. Ms. Burnham agreed; after all, Microsoft shares had been a stock market rocket for a decade, and few people were willing to bet that their rousing performance would end soon.”

But there was a catch. Ms. Burnham needed to borrow the $1 million to buy the shares and pay the income taxes due.

“Instead of recommending a traditional margin loan to pay for the shares, which would have been backed by Microsoft stock in her account, Mr. DiDomenico suggested that she take out a Portfolio Reserve Loan from a banking subsidiary of Merrill, backed by her Microsoft shares. Ms. Burnham was persuaded. Since she also wanted to refinance a $208,000 loan that she and her husband carried on their home in Seattle, she agreed to borrow $1.2 million from Merrill's bank subsidiary.”

“Merrill stood to make more money selling a Portfolio Reserve Loan. It carried origination costs of up to 1 percent; margin accounts do not impose such fees. And some of the firm's Portfolio Reserve Loans carry a prepayment penalty of up to 5 percent.”

“Microsoft stock peaked at a split-adjusted $59.97 during trading on Dec. 30, 1999. Ms. Burnham exercised options through July 2000, when Microsoft was trading at around $40. She left Microsoft in June 2000, hoping to start a family with her husband, Eric. Adding up the options she exercised over a period of months gave her Microsoft shares worth roughly $5.5 million, net after taxes and borrowing costs.”

“Had Ms. Burnham sold her Microsoft shares each time she exercised her options and paid the taxes she owed on the gains, she would have ended up with $4.3 million, her lawyer said. But because she followed Mr. DiDomenico's advice, leveraging her assets greatly, she wound up with an account worth $281,000 when she closed it in 2000. Now living in Las Cruces, N.M., Ms. Burnham is seeking $4.06 million from Merrill to cover her losses.”

”At no time did Mr. DiDomenico advise her to diversify her holdings or to hedge what was a dangerously imbalanced portfolio, Ms. Burnham said. And, she said, he did not tell her what could happen to her holdings if Microsoft stock fell.”

"The last couple of years have been filled with stress and anxiety," she said. "It was devastating to see my lifetime of work and savings melt away. I hired Merrill Lynch for financial advice after being solicited on the Microsoft campus," Ms. Burnham said. "They represented themselves as experts; I trusted their reputation."

Yet another huge, worm infested, stinking pile left by that “friendly” Bull sitting in the living room.

Yet another client taken to the cleaners by Komansky & Co., who conveniently cashed out and left the scene before the flood of lawsuits hit.

Michael Santoli at Barron’s is catching on. He’s documenting the Riverboating drama over in The Trader section of Market Week.

“The fact that traders – and it’s mostly peripatetic traders calling the plays these days – ended up taking the market higher ahead of the weekend. The fear of “upside risk” is still the prevailing emotion on Wall Street. A sleep-interrupting concern among professional fund managers that the broadly anticipated postwar rally will begin without them.”

“So much preoccupation with the idea of missing an easy payday. Nearly everybody expects the market to rally in response to the war. There is an unseemly impatience for the war to start, simply to break the monotony and help the pros’ investment performance.”

Mark’s Translation:

The 29-year old fund managers are running out of time.

“The biological clock of my girlfriend is ticking loudly, with the Iranian Plastic Surgeons and the Pakistani Semiconductor anal cysts in hot pursuit. All losing stocks must be sold. Proceeds to be parked in EBAY, COH, and AMGN, until the Semi Starter Pistol is fired. Dan “The Greaseman” Niles upgrade didn’t work. Maybe Askosh “Slack Eye” Kumar at Piper Jaffray needs to weigh in. Maybe their luck is running out? Maybe they’ll go broke and leave my girlfriend alone. So if the Semi Train fails to pull out of the station, I’ll only have to worry about the Plastic Surgeon. Where’s the next hot sector? This war better hurry up and start. Only 9 months left to make a 35% return and save my job. What if I get up to go to the restroom and the War Rally starts? Can’t afford to miss the first 350 points in the first 10 minutes when this thing starts. Gotta hit that refresh button every half second. Better call my secretary, and have her run to the drugstore to get a pee bag and some more sleeping pills.”


This weekend’s insider selling report:

Gates sold $500,000 of MSFT on Feb. 19, $24.5 million on Feb. 20, Feb. 24, Feb. 25. Almost $75 million in 4 days. On deck for future filings, 3 officers have registered a total of $180 million to be offloaded.

The tanned shlickmeister CEO Howard Shultz of SBUX is unloading. Almost $10 million blown out after the 10% same store sales short squeeze on Feb. 20 and the subsequent “distribution”. Two more officers have filed for future offloading. They better hurry. The stock dropped a hair when Feb. same store came in at only 7%.

AMGN, DELL continue to see relentless filings for future stock sales. Lets see if one of them can pull off another Market Timers Award for ejecting at the exact top.

In the meantime, Structured Finance remains in a parabola, due to the absolute certainty of permanently pegged low interest rates, making the unidirectional spread trade against the Fed Funds rate a no brainer. When Al Green unconditionally assures that interest rates will not move, why not use 200:1 leverage to borrow from the FEED and parlay it into the myriad spread trade vehicles yielding 5% - 9%? Especially when they contain no risk because its been ejected into outer space? And especially when the spread trade debt product is turned into money and round-tripped back home again, to be leverage again at 200:1 leverage for the same trade?

Nowhere else has there been such a sure bet.

Now, more than ever.

Because Al Green will stop at nothing to keep the rates low.

Washington, March 10 (Bloomberg) -- The Federal Reserve may opt for unconventional tactics, such as direct purchases of Treasury notes, to fight deflation should a possible war with Iraq weaken an already flagging U.S. economy.

``A central bank whose accustomed policy rate has been forced down to zero has most definitely not run out of ammunition,'' said Bernanke, who is in charge of economic research at the board of governors, in November. ``One relatively straightforward extension of current procedures would be to try to stimulate spending by lowering rates further out along the Treasury term structure'' through direct purchases of notes or bonds.

``Under circumstances of financial stress or war, the Federal Reserve stands ready to provide all the liquidity that the financial markets need, no questions asked, no penalties, no keeping track.''

Influencing longer-term Treasury yields would take billions of dollars of purchases by the Fed, so the banking system could also be flooded with cash.

Capping long-term interest rates would have one central goal: To kick start spending by artificially lowering long-term borrowing costs.

``The Fed has no tolerance for downside surprises at this point,'' said Lou Crandall, chief economist at Wrightson ICAP Associates, the economic research arm of ICAP Plc, the world's largest broker of trades between investment firms. Crandall also predicts the Fed will cut rates next week. ``The costs of being wrong are too great on the downside.''
Over on Crapvision, Harry Dent and James Glassman are still holding to their 36,000 price target on the Dow.

Why not?

I suppose structured finance will create even more exotica, totally immune to risk, which can be levered 1000:1, creating the greatest liquidity bubble of all time, eventually to be Riverboated into the stock market, where nobody works, everyone daytrading using the same data in real time, chasing stocks into the next bubble top.

Greenspan’s Ultimate Service Economy.

Remember the heads up on the Ford bonds given last week? Spreads have widened from 400b.p. to 470b.p. According to today’s WSJ, “Critic’s Comments Roils Ford Bonds”. Egan-Jones spooked the market with the bankruptcy talk. Ford has $11 billion in equity, $150 billion in debt at FMCC, $14 billion at the holding company, $15 billion in unfunded pension liabilities, and $10 billion in in health care obligations, according to Egan. Not as bad of a paper pyramid as FRE or FNM, but you get the picture.

And of course, S & P and Moody’s immediately come out to reaffirm the ratings. What else do you expect from a Pyramid Enabler??

Program Robots have been exported to Japan. Citicorp’s Nikko Salomon Smith Barney really stuck it to Tokio Marine & Fire Insurance, who wanted Nikko to develop an exchange traded fund. Tokio agreed to pay Nikko a fee based on the EFT’s closing price on a specific day, so “Nikko’s head of program trading intentionally pushed up the price of about five stocks in the final minutes of trading on July 18” to push the EFT index up at the close, according to the WSJ. Nikko made approximately 6 billion in yen from the late day jam job.

Japanese regulators are now investigating.

Speaking of Japan, things are getting dicey. “Uncertainties are building on each other”, says Naoki Kaminyama at Morgan Stanley Japan Ltd., as the March 31 fiscal year end approaches for the banks. Unfortunately, the banks are in their own Hillbilly Club, each owning shares of each other, and shares of Japanese industrials. Who is going to break from the pack first to save their hides?

Bullhorning continues as Japanese officials attempt to play down the stock slump. “The real condition of the economy isn’t so bad. Stock prices don’t reflect this”, says Yasuo Fukuda, a Japanese government spokesman. “Once war started, and if we could expect the war to be short, that would be good for share prices.”

Oh, the horror of so many dependent upon the SOX rally once the bombs start.

I was unable to watch the market today until we reached the close, but noticed that we did the usual slow grind near the lows, with a small waterfall near the end. Interesting how the QQQ, DIA, and SPY are maintaining a tight channel, with a slow drift to the downside. Unable to comment on specific stock action, since I was out most of the day.

I HATE this light volume, and I HATE days like this that close on such high TRIN readings. Looks like all the selling was confined to FRE and FNM. What happened to all that “full disclosure” talk from Franklin “Mr. Potato Head” Raines?? Could this be a sign that the Paper Pyramid is starting to become unglued?

Buddha’s Comment on the coming War Rally:

“Maria Fartoromo has applied for a Vendor's license down on the floor of the exchange. She'll be selling the barbecued limbs of Iraqi women and children to lunchtime floor traders on the first 3 days of the air campaign. Should make a killing. For breakfast during the opening salvo, Larry 'The Tick' Kudlow can feast on sausage links stuffed with Iraqi intestine and Porky Pig Cramer can swill his bacon down with blood chasers. Who are these animals? The nonstop marketing of this coming attack as 'good for the indexes' insures a karma blacker than Hell for American finance and I don't care what the chart says or what the wave count portends. This whole paper artifice of greed and ignorance is set to spiritually combust.”

“We are right on the cusp of a prolonged and idiotic crusade against the entire Muslim World. This should help to hustle the charts back down to fair value and cut the Dow in half from here more or less. Iran is next and then Saudi Arabia once that house begins to crumble. Can you say worldwide instability?”
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#2 machinehead

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Posted 10 March 2003 - 05:14 PM

Besides the high TRIN, we finally got the better than 10-to-1 downside volume day that many were looking for. It was about 17-to-1.

Now what?
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#3 wndysrf

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Posted 10 March 2003 - 05:21 PM

See lead headline at Drudge Report:

Drudge Report
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#4 wndysrf

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Posted 10 March 2003 - 05:23 PM

Machine:

Yeah, don't know about that close. Kind of spooky.

Wonder why nobody is selling yet. Guess nobody wants to miss the rally.

Or, the bulls may have some surprise lurking.
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#5 lb

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Posted 10 March 2003 - 05:28 PM

Frightening fiat foibles Mark, thank you, I think.

Radio news can be funny too: investors today were waiting for the UN vote.

(OK but are they waiting for a no that will mean go or a yes that will mean go.)

Followed by: the Fed may need to cut rates again this month to “insure” we don’t enter into a double dip recession.

Sounds tasty buddhascarfing, as WC would say, I like Iraqis…with mustard.

#6 Rubadub

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Posted 10 March 2003 - 05:32 PM

I too was worried about the extreme TRIN reading today.
However it was accompanied by very light volume and the action though steady was hardly a blowdown.

Along with the 10 to 1 Dec/Adv ratio, the other components
necessary for a bottom are 10 to 1 issues which we didn't
have and heavy volume and heavy down ticks. These components were missing.

I think the downside move continues and there's no reason
to worry about a big rally here. I watched all day long, my shorts gained nicely and there were never any real meltdown
moves in any of them.

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Posted 10 March 2003 - 05:37 PM

The lack of real selling pressure comes from sheer complacency and WISHFUL THINKING...but the point of recognition is near. I had a Match.com guest in from NYC for the weekend. Smart girl, makes six figures, from a wealthy family. She told me she's very close to giving up on stocks and getting out of the market. Another victim of Merry Lynching.

There's just not been a shocking day that drives the point home to force her hand. She may or may not notice that the market was down today, but the market's been down more than this in a day - so no big deal.

Don't underestimate the significance of the curbs (combined with the blatant PRICE KEEPING OPERATIONS) which seemingly prevented the market from being down 700 points today. Why panic and sell now? It's only down a couple hundred points!

If this baby were a true, free flowing, supply & demand trading market - it would already be over.

Plunger

#8 mjkst27

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Posted 10 March 2003 - 05:45 PM

Wonder if Tim Ord and Tom O'Brien loaded the boat long today?

#9 Slothrop

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Posted 10 March 2003 - 05:46 PM

Buddha: well said.

Machinehead: not enough volume to reach any conclusions.

I want to see a VIX spike and we didn't see it today.

#10 swedjap

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Posted 10 March 2003 - 05:55 PM

Mark’s Market Commentary – March 10, 2003

”At no time did Mr. DiDomenico advise her to diversify her holdings or to hedge what was a dangerously imbalanced portfolio, Ms. Burnham said. And, she said, he did not tell her what could happen to her holdings if Microsoft stock fell.”

:mellow:
Some peoples specializes in blaming others for there own very stupid mistakes.
"Ms. Burnham" is a classical example.

Against these characters there is only one safe measure.... avoid them.
Never give them any advise on anything... they will surely do;

A. Misinterpret it or not follow it at all
B. Blame you for the consequences!

... think of this when someone ask you for investment advise :grin:

#11 Pee Brain

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Posted 10 March 2003 - 05:58 PM

i know rates are going down. i dont care, im moving up the timetable and paying of my house this month. the real estate business is booming and a rate cut next week could cause a blowoff! im gonna ride this wave right out the side door. with the house paid off, ive got one foot through the matrix.

congrats to the stoolies today including doc, the calls were awesome! <_<
Iat least we're all safe for now. thank God we're in a bowling alley.

#12 DrStool

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Posted 10 March 2003 - 06:00 PM

Here's what Doc wrote on February 7, in the most recent issue of The Anals in the Pubic Archive.

Roughly 5 to 8 weeks should remain in the 10-13 week cycle down phase. The cycle oscillators continue to move slowly lower. The one in the top chart is in the bottom zone, but it can bounce around down there for weeks, with the market trending lower. The flat movement below the zero line in the 29 day ROC also indicates mild trending which can go on for weeks. There will be no substantial rally, until all of these indicators turn up in concert.

The preliminary cmap for this cycle has been oscillating between 770 and 820. It will continue to shift day to day until the cycle is complete. So far the indication is of a grinding shallow decline. The market may worsen at any time, most likely following a 6-7 week cycle swup.


This conclusion was based strictly on an analysis of price cycles. I use no volume indicators at all. Volume follows the trend. It declines as prices decline until just before the lows. This is the pattern of all bear markets in the past. Why would this one be any different? Heavy selling can only be sustained for 4-5 days before it exhausts itself, while generating enough cash to ignite a rally.

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#13 bubbadropping

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Posted 10 March 2003 - 06:07 PM

First off I want to meet the SwedJap avatar, this is far more important than worrying about meltdowns or ups. In my perspective, this selling now is all a lead up into a staged War rally. It is also prelude to reverse spiking set for 8 days out from OE. Its all just a game. Imo, anyone who takes their chart too seriously will get blown out. This high Trin action won't continue for long. Spiking could begin as early as Wednesday. The nature of slow distribution is that it continually squeezes shorts with radical forensic bounces. I still do not beleive we will see a big wave 3 washout. Chances of a manufactured news story to spike markets is getting better and better the closer we get to Wed - Thurs. War is all about the art of deception first and foremost. There have been stories all week now on Pacifica Radio that several Delta Force guys from 91 are coming forward to confess that they set off the Kuwait oil fires to help demonize the enemy and secure popular support for the campaign. One simply does not know what to beleive at this point about any information either coming out of Iraq or coming out of the Pentagon. It is an EndGame with a go date that I beleive is already set for sometime around March 25.

#14 PileDriver

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Posted 10 March 2003 - 06:10 PM

That's right Doc and typically 80% of a cycle's magnitude occurs in the last 20% of its duration.

Thus, being patient and confident pays.

I can't wait to cover but I will wait until I see true over-sold conditions, still not there yet.

Wake me up when we get there.

Looks like PMs are having a nice firesale worth buying soon. Circa early April. :P

#15 summoner

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Posted 10 March 2003 - 06:11 PM

After recuperating from my week of travels last evening I spent some time looking at charts and reading the Usual suspects...first and foremost Doc of course..time well spent...put a market order in at 9:15 this morning to buy 10 APR 900 spx puts at the open, AMGN finally cracking and ? lows in on the miners...expect more downside prior to the OE capone jam...maxpain 870 as of last evening. TRADE SAFE...good to see the stoolies makin some serious coin!
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