Archive for June 2012

Weekend Open Thread   Leave a comment

For this weekend’s open thread, I thought I would share with all of you a video that Alex put in the comments, but it is a must-see. An intelligent and funny explanation of healthcare in the U.S.:

Have a great weekend folks! And feel free to discuss anything here.

PORTFOLIO UPDATE: Sorry I forgot to post this on Friday, but I knew it would be ugly. My portfolio lost 4.06%.

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Posted June 29, 2012 by edmcgon in Humor, Politics

Daytraders corner   42 comments

Index futures are up big this morning, based on the so-called European “fix”. I am not biting on that, to the point that I added to my SPXU position at 49.29 this morning (lowering my dollar cost average to 52.76).

This is the usual setup for the big fall, probably due next week, but possibly as early as today. Expect plenty of volatility today, with most of it to the upside early.

Here are the S&P 500 levels to watch today:

UPSIDE: 1331 (yesterday’s high and Wednesday’s close), 1334 (Wednesday’s high, Monday’s high, and June 18th low), 1335 (10 day moving average, June 11th high, and Friday’s close), 1340 (50 day moving average and March’s low), 1357 (April’s low), and 1363 (June’s high).
DOWNSIDE: 1325 (June 22nd’s low, June 21st’s close, and June 8th’s high and close), 1324 (Tuesday’s high, June 21st’s low, and June 12th’s high and close), 1321 (20 day moving average), 1310 (Tuesday’s low and June 13th’s low), 1313 (yesterday’s low and Monday’s close), 1309 (Monday’s low and June 1st’s high), 1307 (June 8th’s low and June 11th’s low), and 1298 (200 day moving average and May 31st’s low).

The S&P futures are pointing to a 1341 opening at the moment, which would leapfrog a lot of upper resistance, and put them above the 50 day moving average. But can the S&P remain above that level? The last time they broke it (June 19th), it only stayed above that level for 2 days, before dropping down to 1309 in another 2 days, losing almost 4% in 4 days.

Posted June 29, 2012 by edmcgon in Daytrading, Market Analysis, Portfolio Moves

Europe fixed, version 3.14159: Ed’s Daily Notes for June 29th   Leave a comment

Today’s big news stories are classic examples of “don’t ever take anything on face value”…

Bloomberg: EU Leaders Ease Debt-Crisis Rules on Spain in Merkel Retreat

Euro-area leaders agreed to ease repayment rules for emergency loans to Spanish banks and relax conditions on possible help for Italy as an outflanked German Chancellor Angela Merkel gave in on expanded steps to stem the debt crisis.

YAY! Europe is fixed!

This takes care of Greece, right? Uh, no…

This fixes Spain’s economy? Uh, no, just their banks. Maybe:

After 13 1/2 hours of talks ending at 4:30 a.m. in Brussels today, leaders of the 17 euro countries dropped the requirement that governments get preferred creditor status on crisis loans to Spain’s blighted banks and opened the door to recapitalizing banks directly with bailout funds once Europe sets up a single banking supervisor.

I added the bold part because, as usual, European leaders lay out wonderful plans, but there are always “ifs, ands, or buts”, not to mention the dreaded “when”. For example, the European Stability Mechanism still needs to be ratified by “Member States representing 90% of the capital commitments”, including Germany. The ESM is far from certain, as about 24% of the capital commitment-representing Member States have approved the ESM.

Yet, the ESM is a big part of the latest euro-fix:

Once an “effective” system is set up, the ESM could, “following a regular decision, have the possibility to recapitalize banks directly,” according to the statement.

Spain’s Mariano Rajoy sought that condition to avoid taking on additional sovereign debt.

Even “if” the ESM gets approved, it’s impact will be limited:

…the EU’s two rescue funds may only amount to about 20 percent of the outstanding debt of Italy and Spain, limiting its ability to lower the nations’ borrowing costs.

The rescue mechanisms, the European Financial Stability Facility and the yet-to-start ESM, may have 500 billion euros ($621 billion) available for purchases. Italy and Spain have about 2.4 trillion euros combined of outstanding bonds, bills and loans, according to data compiled by Bloomberg.

And here are the biggest “when” and “if” parts of the so-called resolution:

Relief may not be quick as joint EU banking supervision, seen as a way to make oversight more independent of national regulators, will take time. The EU will consider proposals “by the end of 2012,” according to the statement.

I added the bold part, because this hasn’t even been approved yet! All they did was agree to “consider” it.

And the best part:

Pooling of euro-area debt, a tool sought by Spain and Italy that Merkel called “wrong and counterproductive” in a speech to Germany lawmakers a day before the summit, wasn’t mentioned in the statement. Merkel will explain the deal to the German parliament upon her return to Berlin today before a vote on new EU budget rules and authorizing the ESM.

I would wait and see what Merkel has to say before jumping in with both feet. Also, wait and see the results of the German vote on the ESM. If that fails, the whole thing is moot, because the ESM cannot exist without German approval, since they account for over 27% of the contributions.

Sadly, none of this solves the basic problem most European countries have: They are still spending more than they make in tax revenue, even with their already oppressive tax rates. They are also learning that raising tax rates isn’t a zero-sum thing, since it also seems to hurt their already weak economies.

Another European Union summit has come and gone, and I am reminded of the line from Shakespeare’s Macbeth:

“…it is a tale told by an idiot, full of sound and fury, signifying nothing.”

Wall Street Journal: ObamaCare survives, but the Commerce Clause has limits

The best analysis of the U.S. Supremem Court’s Obamacare decision comes from the Wall Street Journal’s James Taranto:

…In National Federation of Independent Businesses v. Sebelius, four associate justices adopted the position of Florida’s Judge Roger Vinson, voting to strike down the entire law…and the other four voted to uphold the individual mandate as a legitimate exercise of Congress’s authority to regulate interstate commerce.

That left Chief Justice John Roberts, nominated by Bush in 2005, with almost the full range of options before him. Except on the question of ObamaCare’s Medicaid expansion–on which Justice Stephen Breyer and Elena Kagan found it unconstitutional to withhold existing funding to states refusing to participate in the new program–Roberts was the decider.

His decision was a disappointment to those, including this columnist, who are anxious to be rid of this monstrous law. That will require legislative action. But on the most important question of constitutional doctrine, Roberts handed a big defeat to the legal left.

The chief justice agreed with the dissenters that the individual mandate cannot be justified as an exercise of Congress’s Commerce Clause power…

There is another theory about [Chief Justice John] Robert’s motives, and that is that he is playing a longer game. For the outcome of today’s case, it didn’t matter on which grounds the chief justice decided to uphold the mandate. But it could make a great deal of difference in the long run. In limiting Congress’s Commerce Clause authority, the court accepted an argument that the left’s most prominent legal scholars and journalists…mocked as frivolous…

This leaves open the door to future decisions curtailing congressional power. “Has Roberts pulled a Marbury, appearing to give ground while actually laying the foundation for change in the future?” asks law professor and blogger extraordinaire Glenn Reynolds. (The reference is to Marbury v. Madison, the 1803 case that established the principle of judicial review while denying the relief the appellant had sought.) “Call that an optimistic reading,” Reynolds concludes.

Ironically, in approving Obamacare, Roberts has set up a huge legal precedent to prevent further Congressional power grabs. “We the People” can always go back and overturn Obamacare, but what Roberts gave conservatives yesterday was a far more powerful gift.

Posted June 29, 2012 by edmcgon in Economy, Market Analysis

June 28th: Ed’s Daily Portfolio Summary   2 comments

Beating the indexes today wasn’t difficult, although I don’t necessarily expect to beat them tomorrow:

BAC: -0.03 to $7.75 (-0.39%, -2.52% overall)–bought at $7.95
EUO: 0.06 to $21.62 (0.28%, 2.17% overall)–bought at $21.16
NNVC: 0.00 to $0.60 (0.00%, -10.45% overall)–bought at $0.67
SPXU: 0.47 to $51.18 (0.93%, -5.06% overall)–bought at $53.91

OVERALL: +0.49%

Posted June 28, 2012 by edmcgon in Open Thread, Portfolio

Sell Cracker Barrel (CBRL)   Leave a comment

What does Cracker Barrel (CBRL) have to do with today’s Supreme Court decision on Obamacare?

With Obamacare upheld, and with the Republicans basically proposing “Obamacare minus the mandate”, we are looking at continued increases in healthcare costs, with the added bonus of more government spending and/or taxes! In other words, the U.S. economy will be going down, with the only difference being going down hard with Obama or slightly less hard with Romney. Neither presidential candidate has a healthcare plan that gets at the root of the problem, namely the 3rd party payer. As long as that issue remains, healthcare costs will continue to skyrocket, as healthcare consumers have no reason to shop their costs.

But back to Cracker Barrel. Why would they be impacted? Their biggest impact will come from the bigger bite healthcare will take out of their potential customers’ pockets. In addition, I already have a nice profit in it, and I have no plans to lose it. Even if my assessment of Obamacare/Romneycare’s cost on the economy is wrong, I still have a profit. Nobody was ever wrong taking a profit.

The final line on Cracker Barrel, which sold at $60.26:
CBRL: -0.29 today, +5.25 overall to $60.26 (-0.48% today, +9.54% overall)–bought at $55.01

Posted June 28, 2012 by edmcgon in Editorial/opinion, Politics, Portfolio Moves

Daytraders corner   54 comments

Right now, futures are pointing to a 1% drop in the S&P 500 at the open. Mind you, that doesn’t mean it won’t bounce, or even go down further. I expect today will be quite volatile with all the big news stories coming out.

Here are the S&P 500 levels to watch today:

UPSIDE: 1334 (yesterday’s high, Monday’s high, and June 18th low), 1335 (10 day moving average, June 11th high, and Friday’s close), and 1341 (50 day moving average).
DOWNSIDE: 1324 (Tuesday’s high, June 21st’s low, and June 12th’s high and close), 1325 (Friday’s low, June 21st’s close, and June 8th’s high and close), 1320 (20 day moving average and yesterday’s low), 1310 (Tuesday’s low and June 13th’s low), 1309 (Monday’s low and June 1st’s high), 1307 (June 8th’s low and June 11th’s low),and 1297 (200 day moving average).

In spite of every technical reason to expect the markets to go down today (mainly firm resistance at 1334-1335), my gut says “up”, mainly because it is the next to last day of the quarter. Call me cynical…

Posted June 28, 2012 by edmcgon in Daytrading, Market Analysis

Big day! Ed’s Daily Notes for June 28th   Leave a comment

The Supreme Court decision on Obamacare, the European Union summit, and the third revision on the 1st quarter U.S. GDP, all happen today. Can you stand the excitement?

Financial Times: Germans back euro by small majority, poll finds

This is a rather telling poll:

If a referendum were to be held in Germany tomorrow on membership of the euro, those in favour of retaining the common currency would have a very narrow majority over those wanting to bring back the Deutschmark, according to a new opinion poll.

Only 43 per cent of Germans would vote to keep the euro, against 41 per cent opting to return to their former currency, according to YouGov, the internet-based pollster. If there were instead a vote on EU membership, a clear 51 per cent would vote in favour, against 28 per cent against, the poll suggests.

Even more telling:

Almost two-thirds – 64 per cent – say failure to tackle the euro crisis effectively is the greatest danger to face the country. Slightly more, 67 per cent, trust the German government to take the right decisions about the future of the EU.

That is an unusual vote of confidence in Angela Merkel, chancellor, when she attracts widespread international criticism.

In other words, the rest of Europe can kick and scream all they want, but Merkel has popular support in Germany. As Tip O’Neill once said, “All politics is local.” European politics is no exception to that truism. Unfortunately, this bodes ill for any kind of solutions to the European mess, so don’t expect anything good from today’s EU summit.

Which brings us to…

The Telegraph: Debt crisis: Angela Merkel dismisses Spain and Italy’s pleas for aid

Germany’s Chancellor angrily rejected desperate pleading by Italy and Spain as a Franco-German rift over eurozone debt sharing threatened to unravel efforts to find a fix for the single currency at a meeting of European leaders on Thursday.

Before flying last night to Paris for emergency talks with Francois Hollande, the French President, Mrs Merkel told German MPs that instead of more cash the eurozone needed to step up debt reduction and economic reforms.

“I fear that at the summit we will talk too much about all these ideas for joint liability and too little about improved controls and structural measures,” she said.

Mariano Rajoy, the Spanish Prime Minister, said he would plead with other leaders to allow euro bail-out funds or the European Central Bank to stabilise financial markets by helping to reduce borrowing costs, running at nearly 7pc for Spain.

“We can’t keep funding ourselves for a long time at the prices we’re currently funding ourselves,” he said. “There are institutions and also financial entities that cannot access the markets. It is happening in Spain, it is happening in Italy and it is happening in other countries.”

Europe is not getting any prettier, and it doesn’t look like the Germans will give any ground. While I agree with the Germans, I also think Europe’s future is rather murky because of it.

Fox Business: Health-Reform Tax Dollars Hang in the Balance

This article details how the U.S. government has already spent about $11 billion for Obamacare, and that is only what this article details.

A big question hanging over the U.S. Supreme Court decision that could potentially toss health reform out the window is this: What happens to the billions of tax dollars already spent to carry out the law if parts or all of it are struck down?

A majority of the states, as well as local governments, companies and unions, have already received billions of tax dollars to enact parts of the law so far. The federal government is essentially staying mum on whether it will claw back this money on behalf of taxpayers.

Personally, I am willing to call it a loss and move on. Anything to get rid of that absurd law.

Bloomberg: U.S. Home Loan Banks Overexposed in Europe, Audit Finds

The U.S. Federal Home Loan Banks’ unsecured lending to foreign institutions skyrocketed last year as the European sovereign debt crisis intensified, raising concerns about their risk management, an auditor’s report said today.

The Federal Housing Finance Agency, which oversees the 12 regional Home Loan Banks, should tighten limits on such lending and improve monitoring of whether that lending exceeds the limits, the FHFA Office of Inspector General said in the report.

“FHFA’s current regulation continues to permit FHLBanks to build large unsecured credit portfolios that may produce unreasonable risk,” wrote Richard Parker, director of the auditor’s Office of Policy, Oversight and Review. “FHFA should, therefore, reassess the counterparty risk limits associated with its existing regulation.”

Several Home Loan Banks last year made short-term loans totaling about $3 billion to two European banks that had received government bailouts and were on a credit watch, according to the report.

Federal Home Loan Banks’ unsecured lending to foreign banks peaked in April of 2011 at $101 billion before falling to $41 billion at the end of the year, the audit found.

What is curious about this is: Why are FHLBanks making loans to Europe? In case you aren’t familiar with them, here is a brief description from Wikipedia:

The FHLBank System was chartered by Congress in 1932 and has a primary mission of providing member financial institutions with financial products and services that assist and enhance the financing of housing and community lending. The 12 FHLBanks are each structured as cooperatives owned and governed by their member financial institutions, which today include savings and loan associations (thrifts), commercial banks, credit unions and insurance companies.

Yet another “New Deal” project gone wrong…

Posted June 28, 2012 by edmcgon in Economy, Editorial/opinion, Market Analysis, Politics