Freddie Mac Attack

Freddster (noun): Fraudster who profits from conflict of interest at Freddie Mac (the knife).

Jesse Eisinger, pf ProPublica and Chris Arnold, of the public sector NPR News have the most interesting article about ruthless greedy uh socialism I guess at public sector Freddie Mac.

The idea is that Freddie Went long the interest payments on mortgages and not the principal repayments. This means the harder it is to refinance, the better for Freddie Mac. Freddie Mac also has significant regulatory power to decide how hard it is to refinance Freddie Mac insured loans. The conflict of interest is clear.

via Kevin Drum where commenter
Andrew Sprung wrote
“Could Einsinger and Arnold”s story have been prompted by an administration leak as a prelude to a recess appointment to replace DeMarco at FHFA?”

I hope so, or rather I wish I had any hope that it is so. But at least it is a hint that someone in the White House has decided to put pressure on DeMarco.
I also look forward to testimony by the Freddie Mac CEO Charles Haldeman who I expect will have considerable trouble recalling details (see HR Block)

After the jump I cut and paste a summary of the conflict of interest from Eisenger and Arnold with human interest and Freddie Mac efforts to respond to the accusation deleted.

Those mortgages underpin securities that get divided into two basic categories.

One portion is backed mainly by principal, pays a low return, and was sold to investors who wanted a safe place to park their money. The other part, the inverse floater, is backed mainly by the interest payments on the mortgages … . So this portion of the security can pay a much higher return, and this is what Freddie retained.

In 2010 and ’11, Freddie purchased $ 3.4 billion worth of inverse floater portions — their value based mostly on interest payments on $ 19.5 billion in mortgage-backed securities, according to prospectuses for the deals.

[skip]

It’s … a big problem if people … refinance their mortgages. That’s because a refi is a new loan; the borrower pays off the first loan early, stopping the interest payments. Since the security Freddie owns is backed mainly by those interest payments, Freddie loses.

[skip]

Restricting credit for people who have done short sales isn’t the only way that Freddie Mac and Fannie Mae have tightened their lending criteria in the wake of the financial crisis, making it harder for borrowers to get housing loans.

[skip]

just as it was escalating its inverse floater deals, it was also introducing new fees on borrowers, including those wanting to refinance. During Thanksgiving week in 2010, Freddie quietly announced that it was raising charges, called post-settlement delivery fees.

In a recent white paper on remedies for the stalled housing market, the Federal Reserve criticized Fannie and Freddie for the fees they have charged for refinancing. Such fees are “another possible reason for low rates of refinancing” and are “difficult to justify,” the Fed wrote.

A former Freddie employee, who spoke on condition he not be named, was even blunter: “Generally, it makes no sense whatsoever” for Freddie “to restrict refinancing” from expensive loans to ones borrowers can more easily pay, since the company remains on the hook if homeowners default.


Angry Bear

January 30th, 2012 Market Recap with Top ETFs YTD

Today’s market gist from IBD,

The stock market closed lower Monday but well off its session lows. The Nasdaq, which had been down as much as 1.2% in early trading, closed with a 0.2% loss. Strength in techs seemed to help the composite.

  • From what I gather from my reading, Europe’s latest is that Greece is expected to be ousted from the Eurozone and the market has already baked in any other drama possibilities. Debt sales are going better than expected in countries like France and Italy, and leading powerhouse Germany is showing positive signs from its latest economic data. Track the Europe’s debt crisis with this New York Times tool.
  • Fun fact from today’s Bespoke report on ETF performance year to date, Silver SLV is leading with a gain of +20.56% and natural gas UNG is leading the decliners with a -10.37% return ytd.
  • For those who have been hearing yip yap about the looming “golden cross” (when the 50 day moving average crosses back above the 200 day moving average), Barry posted a good article on the topic which breaks down some truth behind it. While a positive signal historically, it is no golden “guaranteed to profit” opportunity.
  • Lastly, if you are like me and have a hard time remembering earnings dates, I suggest using Yahoo Finance’s earnings calender. I apologize for not mentioning it at the beginning of this past earnings season!

Stay frosty out there and I will see you back here tomorrow.

Original post: January 30th, 2012 Market Recap with Top ETFs YTD




Stock Trading To Go

Amgen Reported Earnings – Now What?

Written By: DragonFly Capital

Amgen, $ AMGN, reported earnings after the close Thursday missing on earnings by a penny per share, beating on revenues and guiding higher. All right! Wait, is that good news or bad news for the stock? The high priced Wall Street analysts will tell you what they think about the fundamentals, based on their own firms positions and relationships. But from a deep dive into the truth, the price action, the story looks good.

Amgen, $ AMGN, Daily

The daily chart above shows that it went into the earnings report building a bull flag between 67.40 and 69.60. After the report, in after hours trading, it is still in that flag. It does have some signs of rolling lower on this time frame with a Relative Strength Index (RSI) that is bullish but falling and a Moving Average Convergence Divergence (MACD) indicator that has crossed negative. But still in the flag. Support lower is found at 65 and 63.60 followed by 60.90 and 58.80. A break of the flag higher though has a Measured Move to higher to 74. The weekly chart also

Amgen, $ AMGN, Weekly

shows some signs of needing a rest. The RSI on this time frame is also falling back but still very bullish and the MACD is starting to fade. More interesting is that price is about 20% above the Simple Moving Averages (SMA). Extended. This can resolve with the SMA’s launching higher as well as a pullback in the stock. If it does pullback there is support at 60. It is when you step back to the monthly chart that a very bullish picture emerges. On this time frame it is breaking out of a symmetrical triangle at 60, with a target out of the pattern to 84. And it gets better. The RSI has only recently turned bullish and is rising, while the MACD is growing more positive with

Amgen, $ AMGN, Monthly

the Bollinger bands expanding to allow for more upside. If you can look at this as an investment instead of a trade it seems to have over 20% upside left in it. And it pays you a 2% dividend to wait. Your money, your choice.

Dragonfly Capital

Inspiring words for Martin Luther King Day

Today we celebrate the memory of one of our greatest Americans, Martin Luther King, Jr. I wonder if any of our politicians will stand up and say “It doesn’t matter if you’re black or white because probably there are at least a few hundred million people in China who are smarter, better-educated, and harder-working than you and private companies would much rather hire any of them.”

Philip Greenspun’s Weblog

13.9% Just Under 15% ?

What is a small amount of money ? The extremely excellent Josh Marshall typed

We’ve got the first report about Romney’s 2010 taxes. His effective tax rate was 13.9%, just below the 15% he estimated last week. More shortly.

44 minutes ago (eek I just typed “just typed” then noticed the irony).

The tiny difference between the taxes Romney publicly guessed he roughly paid and the taxes he paid is over $ 450,000. One of Romney’s many gaffes is saying his taxes were around 15% because, although he had earned money for speaches, he didn’t earn much. Indeed he earned less than 450,000 that way. But it is a huge amount of money to earn with so little sweat.

Similarly the difference between 13.9% and 15% is more than seven times median family income.

Of course, Romney’s income isn’t close to a rounding error in the Federal Budget.

I think that getting the rate under 15% requires considerable effort. As a businessman consulting with his lawyers and accountants, Romney doesn’t leave money on the table (it’s not the money it’s the principle that it’s all about the money). As a candidate, I’m sure he really really wishes he had found a way to send a million more over to the IRS.


Angry Bear

January 23rd, 2012 Market Recap… Complacency at Fresh Highs

Nothing major from the market today as the indices closed flat on lower volume. The word floating around is that there is extreme complacency with the market currently, suggesting a pull back is looming in the very near future. For further analysis read these quality posts from today’s StockCharts.com and ZeroHedge. Some key points from ZeroHedge:

  • “Most measures of market sentiment are back to where they were last May just when the S&P 500 was peaking.
  • Short interest has dried up to three year lows.
  • The VIX closed the week below 20 for the first time since last July.
  • As Mike Santoli points out in Barron’s, volume in leveraged ETF’s versus bearish ones has risen to levels that in the past touched off interim market pullbacks.
  • Credit market indicators have lagged well behind the improvement in equity performance.
  • The S&P 500 is three standard deviation points above its 20-day moving average.
  • Again, as Barron’s points out, the ratio of the 15-day volume puts on the S&P 100 Index to bullish call volume hit 2-to-1 last week – this happened in the February 2007, February 2011 and April 2011.”

On the earnings front there are a few notables reporting tomorrow. Get ready for earnings reports from Apple (AAPL), McDonald’s (MCD) and Coach (COH). Also on the economic front, Wednesday will have the latest Pending Home Sales data released.

I also wanted to mention a pretty cool website I stumbled across today while doing testing for the StockBrokers.com 2012 Broker Review set to be published next month. The site is Trefis.com and for visual investors it is interesting to say the least. The site breaks down each company visually to see what product lines make up the stock price value. Here’s Apple’s from the site below. Anyone use this before? I’d be curious to know if these are actually accurate metrics.

Notes aside, hope this market is treating you well and I will see you back here tomorrow! Try not to be too complacent out there ;)

Original post: January 23rd, 2012 Market Recap… Complacency at Fresh Highs




Stock Trading To Go

SMB Fundamental #1–Proper Preparation

Last month I wrote a post about SMB Fundamental #7–Reviewing Your Important Trades. Today I would like to discuss #1–Proper Preparation. All trading success begins with proper preparation and that is why it is #1 on our list of trading principles that must be followed for each trade.

Part of my morning pre-market preparation is to review the price action from the prior day’s In Play stocks. I identify these stocks by reviewing the prior morning’s Gameplan and the prior end of day’s Radar snapshot. By reviewing these stocks I am able to prepare myself mentally for the most likely trading scenarios. Here are a list of some things I ask myself while reviewing these names?

  1. Was the stock strong or weak the prior day?
  2. Were there key levels intraday that traded significant volume?
  3. Is the stock in a long term downtrend/uptrend?
  4. Was yesterday’s move significant on a time frame greater than intraday?
  5. What trades would I take simply based on technical analysis?
  6. What type of confirmation would I look for on the tape to enter a trade or be more aggressive?

There are a lot more questions to be asked during preparation by I am sure you get the basic idea. Let’s take a look at CREE. It has been in a monster downtrend for a very long period of time. It reported earnings after the Close on Tuesday. The initial reaction was negative as the numbers seemed to be a disappointment. But by the next morning CREE had made higher lows in the pre-market and eventually went on to closing near its high. This is bullish price action.

For those who like to use “candlestick” patterns as part of their analysis CREE had an “engulfing” bar on the daily time frame yesterday on very heavy volume. And if that type of analysis helps you to feel more confident in trading CREE on the long side then great! Use it to help you pull the trigger when CREE signals to you intraday that you should be getting long. Here is my analysis for the price action from today. The three possible long entries highlighted all represented greater than 1:5 risk/reward ratios that we teach our mentees to search for each day.

Steven Spencer is the co-founder of SMB Capital and SMB Training and has traded professionally for over 15 years. His email is sspencer@smbcap.com. for a free trial of the Stocks In Play call send an email to rmendez@smbcap.com.

No relevant positions

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SMB Capital – Day Trading Blog

Ready for the Final Nail in the Dollar’s Coffin

Written By: DragonFly Capital

The US Dollar run has looked to be over since breaking to new highs recently. It exhibited signs of failing, Topping Tails, and small body candles. But then the fall began with longer red candles and gaps on the Powershares DB US Dollar Index Bullish Fund, $ UUP as shown in the chart below. The trend higher cannot be pronounced dead yet but it may put the final nail in its coffin on a break below the solid trend line at 22.30. If that happens support lower at 22.20 and then 22

may give it a chance for a recovery. But under 22 will bring it to 21.77 and then it is over. This is generally bullish for stocks, despite the recent disconnect with the US Dollar and Equities rising. Are we back to the inverse correlation? US Equities seem to say yes with the $ QQQ breaking higher and the $ SPY and $ IWM following close behind. more fodder for the Bulls.

Dragonfly Capital

Where Has All The Money Gone, Pt I, Corporate Profits

INTRODUCTION

1) Rethug Speaker of the House John Boehner says that as a nation, “we’re broke“; Rethug presidential candidate Ron Paul claims America “should declare bankruptcy.”  I say these two are liars, and at least one of them is crazy.

2) Tyler Cowan says “we are poorer than we think we are,” due to mis-measurement of value, which might be true.  I believe his prescription for recovery is generally very bad, though.

3) In comments to my previous Angry Bear post, Bob McManus directed us to the writings of Michael Hudson, where we find his post Democracy and Debt
This is must reading.  The relevant point here is that the increasing
capture of wealth, as rents, by a creditor class impoverishes society in
general, and this eventually leads to severe repression, major social
upheaval, or both.  I whole-heartedly agree.

4) Jon Hammond’s guest post at Angry Bear shows that a more-or-less continuous decrease in real investment has occurred during the post WW II era.

In
this series of posts, I intend to show that we are a wealthy nation,
but that our wealth  has been increasingly captured by elite creditors,
who, in my opinion, are strangling the economy by 1) extracting
excessive rents and 2) diverting this wealth to financial tail chasing,
rather than real investment.

WHERE THE MONEY HASN’T GONE

Here is a look at average hourly earnings, the typical income of a working stiff, presented on a log scale.

Like almost every time series you can imagine, including GDP,
it exhibits a break near 1980.   The break is always to lower growth. 
But, compared to most other data series, this break is especially sharp.

Hear
is the same series compared to GDP, an approximate measure of the
income of the nation, on a linear scale.  For this graph, each is
normalized to a value of 100 in Q1, 1965.

While earnings have grown less than 8 times in 47 years, GDP has grown more than 20 times.

Clearly,
the money has not gone to compensation of the workers whose labor
actually creates the wealth of the nation.  That might explain some of the alleged envy.

CORPORATE PROFITS

As a first step in
finding where the money has gone, let’s consider the growth of corporate
after-tax profits since about 1950.  You can see it in this FRED graph.  
It’s on a log scale, so constant growth would be a straight line. 
There are lots of wiggles, but I see an increasing slope over time, and
it’s not an optical illusion.

There
are a lot of ways to parse this.  One is to connect the dip bottoms
with straight lines.  I’ve done that with alternating red and blue to
show the slope increasing over time.  The problem is selecting which
bottoms to connect.  Some alternate choices are indicated in yellow. 
The yellow lines define times of above normal profit growth: 1970 to
1980, 1986 to 1998, and 2001 through 2007.  Each of them leads to a
correction, indicated by a purple line across the top of the decline.

After
I did all that, it occurred to me to let Excel throw an exponential
best fit line on the data set, and you can see that as well.

I
see now that I could have included another yellow line from 1961 to
1967.  Notice that with each yellow line, the data set advances above
the exponential best fit line before a sideways correction takes it
below again.  After the correction is complete, profits increase again
until the best fit curve is breached.  Or, they did until now.

Remember
that on a log scale constant growth rate is represented by a straight
line, and that the growth compounds, so that the underlying increase is
exponential.  Sooner or later, that has to end.  Nothing in the real
word can go to infinity.  Here we see an exponential curve on a log
scale.  This demonstrates an increasing growth rate.  Therefore, the
underlying increase is greater than exponential.  If exponential growth
is unsustainable, what would you say about greater than exponential
growth?

In fact, the whole trend might now be falling
apart, as the last blue line has a much lower slope.  Also, for the
first time following a correction, profits have stayed below the trend
line, and the gap is increasing.

To show the extent of
national income capture by corporations, here is a graph of corporate
profits as a percentage of GDP.   I’ve divided the set into two
segments: 1951 to 1979, and 1980 on, and had Excel place a linear trend
line on each.  This division is somewhat arbitrary, but almost every
economic time series you can find has a break point within a few years
of 1980.  Division between ’79 and ’80 is the least favorable to my
point that Profits/GDP had no trend in the post WW II Golden Age, but
have trended sharply upward during the Great Stagnation period.

Profit/GDP
growth was unusually poor from 1980 through 1986.  Then from late 2001
through early 2006 it exhibited the greatest growth ever.  But remember
the denominator effect.  Nominal GDP growth
increased rapidly following the ’80-’82 double recession; while GDP
growth in this century has been generally slow.  The financial melt-down
of 2008 caused a dip that was sharp and brief, but the rebound has not
gone to a new high.  But even now, in the midst of anemic recovery,
profit/GDP is hovering in the 9 to 10% range, far above historical
norms.

CONCLUSION

The
corporate profit growth picture looks unsustainable, and that is
troubling.  What it means for the future is anybody’s guess.  But, what
we get from it is the first partial answer to the question, “Where has
all the money gone?”

Gone to profits, everyone.

A slightly different version is posted at Retirement Blues.


Angry Bear

Walk Away from Your Day Trades

Intraday plays can offer exceptional opportunities for not only capturing quick moves, but also for managing risk by avoiding the overnight gap risk.  It’s a timeframe which full-time traders often participate in, but one which the part-time trader often avoids due to a perceived inability to manage the trade effectively.

With today’s trading technologies available to us all, there’s no longer an excuse for missing out on moves when away from your screens.  The bracket order is a well-known device for the set-it-and-forget-it type of trade, but there are aspects of it which few utilize.

I’ve realized through helping so many part-time traders who desire to capture some intraday moves that it’s common to simply think inside the box.  Most of them view a bracket order as an entry, a stop, and a limit order (set at the target).  That’s not at all a bad way to do it, and in fact it’s exactly how I use brackets on my swing trades.

Get Creative

For day trades and the bracket order, a little creativity can go a long way.  Mix up the parameters from the usual bracket order you use and throw in a couple of different variables.

One of your stop choices is the trailing stop, which can be excellent for intraday trading.  This order allows you to designate either a percentage or a price amount which the stock would have to retreat from its best level (since the trade was entered) in order to trigger a closing order.  For the trader seeking to grab as much of an intraday trend as possible, this is a great option to have available – particularly in momentum names which have the ability to keep running.

Another choice which can be made is the time stop for managing exits.  This order is based on the clock, so once a given time of day is reached, the next action can be triggered (sell!).  Since the whole idea of a day trade is to capture intraday movement and not hold overnight, consider setting a time-triggered order to exit the position ahead of the closing bell.

Here’s what the basic order structure would look like on the thinkorswim platform with a stop buy entry if ABC clears $ 50, with a trailing stop of $ 0.50 and a time stop for a market sell late in the day (click to enlarge image):

The trailing stop is set to cancel 10 seconds before the time stop, just for the safety of not having the orders overlap (even though there should be no issue).  I clicked the little gear icon beside the order on the far right side of the image above, then selected ‘Cancel order at Specified Moment’ and designated an exact time to cancel the trailing stop (click to enlarge):

The time stop is simply a market sell order which will go live at the designated time, in this case 90 seconds before the closing bell.  Again, clicking the gear icon brings up this dialogue box where I simply checked ‘Submit Order at Specified Moment’ and set the time (click image to enlarge):

The bottom-line lesson is this:  even as a part-time trader, you can still participate in some intraday moves.  Use the technology which is at your disposal, and think outside the box a bit.  It can help you manage risk effectively, and if the trade works you can lock in some solid profits – without sitting at your desk!

Trade Like a Bandit!

Jeff White
Producer of The Bandit Broadcast

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TheStockBandit.net

Hotels for the Wanderers and the City Folk

Written By: DragonFly Capital

I will be driving from Cleveland to Chicago Thursday morning passing through Indiana and then back again Friday. There is expected to be some foul weather so I started thinking about what I would do if I get stranded in the middle of no where. The house on one end of the trip and the nice big hotel with a conference center on the other end. Did you ever notice that there are plenty of Choice Hotels, $ CHH, brands when you are in the middle of no where. Every interchange on the highway has a Comfort Inn, Quality Inn and Econolodge, some of the Choice brands. But you will not find a Hyatt Hotels, $ H, in Lagrange, Indiana. A real distinction between the brands. One for wanderers and one for city folks. Not much wandering going on in January. It plays out in the charts as well. Take a look.

Choice Hotels, $ CHH

Choice Hotels, $ CHH, had a great run higher through the fall and into the holidays. Since then it has fallen back. It is currently in a bear flag under the 50 day Simple Moving Average (SMA), where it has not been since the breakout in October occurred. It is showing some signs that it may be ready to turn higher. The Relative Strength Index (RSI) is bottoming above 40 remaining in the bullish zone and the Moving Average Convergence Divergence (MACD) indicator is starting to improve. The increased volume on this downward leg is also diminishing and it stalled at support of the gap up and prior resistance. But it remains a downtrend until it can get back over 36.60. Stay away until then.

Hyatt Hotels, $ H

Hyatt Hotels, $ H, have not exhibited that pullback though and the stock is trading right at resistance at 40 in a bull flag. It has a RSI that is bullish, but a MACD that looks to be ready to cross negative. Perhaps the run is done, but the trend remains higher until it falls below 37.50. This is a good long trade over 40.

Dragonfly Capital