OptionPundit

Tag: C

  • Citi, BofA May Need to Increase capital

    According to Wall Street Journal, U.S. regulators told Citigroup Inc and Bank of America Corp they may need to raise more capital. The shortfall in capital amounts to billions of dollars at BofA, the paper said, citing people familiar with the bank.

    Both banks, whose officials are objecting to the preliminary findings of the tests, plan to respond with detailed rebuttals, the people told the paper, adding BofA’s appeal is expected by Tuesday. It is likely that Citigroup and BofA are not the only banks that the Federal Reserve has determined might need more capital, the paper said.

    Expect more volatility in the markets.

    Profitable Trading, OP

  • Citi, Uptick and Mark-To-Market

    So we had it finally. The pressurized spring bounced back and shorts were pressed against the wall to cover. Fantastic rally by all means, it was easily qualified as a 90% Upside Day on both the NYSE and the NASDAQ that too on expanding volume. Market breadth was also much more impressive during yesterday’s rally. I had never thought (Probably Vikram Pandit as well) that his letter to Citi (C) employee can spark such a massive global stock market rally. In fact there were 3 things of note yesterday.

    1. Citi CEO’s letter.
    2. Reimpose the uptick rule (An untick rule is a securities trading rule used to regulate short selling in financial markets. The rule mandates, subject to certain exceptions, that, when sold, a listed security must either be sold short at a price above the price at which the immediately preceding sale was effected or at the last sale price if it is higher than the last different price) and
    3. Possible “Improvement” to “Mark-to-market” rule

    All good till it is not. We’ll find out later if y’day was a bottom and this bull has legs to run or Bears just released ground for a technical rebound from deeply oversold levels to set stage for next down leg.

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  • Citi(C), Aflac(AFL), SanDisk(SNDK) and DOW

    There is a lot of earnings data this week and today is also heavy. There doesn’t appear to be a clear direction. As of this writing futures are pointing to modestly higher opening. Here are four heavyweights-

    Citigroup (C) issued a quarterly progress report sharing how they are deploying $45 billion in capital it received from the Treasury under the TARP. “Our responsibility is to put these funds to work quickly, prudently and transparently to increase available lending and liquidity,” said CEO Vikram Pandit in a statement included in the report. To that end, Citi said it is putting $36.5 billion to work into following areas- a) $25.7 billion to U.S. residential mortgage activities, b)$2.5 billion of personal and business loans, c) $1.0 billion in student loans, d) $5.8 billion in credit card lending and e)$1.5 billion in corporate loan activity.

    Insurance provider Aflac (AFL) missed earnings and revenue expectations in the fourth quarter, but said it does not anticipate a need for raising additional capital and may be that’s what is driving their stock price higher in the pre-market activity.  Recently AFL has been very volatile.

    SanDisk (SNDK) reported a steep loss. For the fourth quarter, SanDisk reported a non-GAAP loss of $1.65 per share, excluding nonrecurring items, $1.05 worse than the First Call consensus that expected a loss of $0.60 per share. Revenues plummeted 30.6% year-over-year to $864 million compared to the $766.7 million consensus. SNDK is losing about 20% in the pre-market activity.

    Dow Chemicals (DOW) lost $1.55 billion in the fourth quarter, due in large part to restructuring costs including its decision to slash 11 percent of its work force and a 23 percent drop in sales amid a global slump. As of yesterday’s close, DOW is selling for almost half the book value, and at a price level seen in 1980s. It credit default swaps widened by 79 basis points to 619 basis points, or $619,000 a year to protect $10 million of debt.

    Tough times indeed, but opportunity time as well, depends on how you view it.

    Profitable Trading, OP

  • JP Morgan Chase beats by $0.07, misses on revs

    JP Morgan Chase (JPM) Reported Q4 (Dec) earnings of $0.07 per share, $0.07 better than the First Call consensus of ($0.00); revenues fell 0.9% year/year to $17.23 bln vs the $18.83 bln consensus. Losses were in investment banking due mark downs on leveraged loans and mortgage trading positions. They faced higher credit costs associated with continued deterioration across our loan portfolios, including a $4.1 billion addition to loan loss reserves. Let’s see how it filters to the financials today.

    What a nasty day that it was. A worse-than-expected retail sales report brought the sellers into the market it sold off in a broad-based decline that saw all the major market indexes-big, mid and small cap—fall by 3-4%. Intense selling made it a 90% Down Day for both NYSE and NASDAQ. One of the worst hit sector was financials and Bank of America (BAC) closed very close to $10W, and Citi (C) fell again below $5.

    Losses were heavy and across the board led by Coal -8.7%, Steel -8.3%, Casino -7.1%, Insurance -6%, Airline -5.9%, Computer-Hardware -5.7%, Networking -5.5%, Oil Service OIH -5.5%, Rail -5.4% (new 52-wk low), Housing XHB -5.3%, Bank -5.2%, REITs IYR -5.1% and so on.

    In yesterday’s sell-off, the DJI, S&P 500 and NASDAQ all finished below near term support levels that I mentioned in my earlier post and the possibility of retesting of Nov lows now seem higher. Keep in mind though, that 90% Down Days are frequently followed by rallies of 2-7 days, but that isn’t necessarily true all the time. Let’s wait for either the follow through or reversals. The US market’s reactions was followed through to the Asia and rest of the world and index lost heavily across the board. Key one to mention is Japan’s Nikkei average that fell 4.9% on a record fall in Japanese machinery orders .

    But the action is not yet over, We have PPI and Jobless claims at 8:30am US EST today. You may want to stay in touch with my updates on InvesCafe which I may use for intraday opportunities.

    Rest Later, profitable trading, OP

  • Is Berkshire in Trouble?

    This 2 part series will cover recent market developments about Berkshire Hathaway, points to a strategy on how you may benefit more on the same trades he did recently and an option trading strategy that probably Berkshire uses for maximizing it returns on the underlying they find worth investing. Don’t forget to read the big picture of US stock markets. Markets are behaving pretty much that way. I am opening December portfolios for OPNewsletter, to join, pls click here.

    Before I proceed, I must mention that I admire Mr Buffett’s skills. I got an opportunity to meet-up face to face with him in 2005 and it was one of the finest moments of my life to first hand hear the living legend. Listening and questioning him propelled my learning about his style way more than any book did. I, in no way can doubt his selection or will know in full his style of investing. Beyond classic investing theory, his intuition is par excellence. So below post is a mere attempt to interpret in my way. Pls do your own due diligence before making any decision based on info presented here.

    According to Forbes, The credit default swap market says the Oracle of Omaha is headed for trouble. The credit default swap market thinks so. Spreads on insurance against a debt default by Warren Buffett’s triple-A-rated Berkshire Hathaway are trading about on par with that of the embattled General Electric and worse than Goldman Sachs and Citigroup. Per same article, “Credit default swaps on Berkshire traded at 440 Wednesday, according to Phoenix Partners Group.

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  • Cut Jobs, Raise Rates, Buy Shares

    A day after Citigroup (C) hit a multi-year low and relaxed below $10, CEO Vikram Pandit’s bought some shares (~>US$8MM) and announced to axe another 10,000 jobs. He also decided to raise rates on credit cards. Weren’t they suppose to lower the rates when FED is even willing to go lower than 1%, hello!!!Sure “they” know something that I don’t?

    Sales fell a larger than expected 2.8% for the month (consensus -2.1%), while Sales less autos declined a larger than expected 2.2% (consensus -1.2%). Doesn’t spell well for the upcoming Christmas Season.

    Freddie Mac lost $25billions, when are they going to stop bleeding money, what a mess! Billions has now no meaning. As Richard Koo mentioned in “Balance Sheet Recession“- “when temptation (or call it greed) wins over reason (call it rationale), disaster will not be very far-off”…and that temptation seems was too much (or too little)..

    Markets sky rocketed yesterday soon after penetrating October lows, many were taken by surprise and sure stop loss orders might have been triggered too adding to the pain, ah! The bounce was quite dramatic. According to Lowry’s, the volume expanded on this retest of Oct lows and the up volume fell short of 90% of up+down volumes. was in deed >90% (they confirmed later their analysis was available, based on prelim indication it wasn’t). The new lows also expanded vs day ago. Let’s see if there is a follow through to this rally.

    Profitable Trading, OP