New Lows

by Larry Levin

The most recent "bottom" call that was mentioned ad nauseam on television was the October low. How many is that now - 50 lows? Anyhow, it has come and gone again. For some reason that surprised the talking heads on financial television shows, but I doubt it surprised you. After all, by now you are FOLLOWING the TREND and the trend is clearly down.

The early market action revolved around the Big Three Automaker & UAW handout. When news leaked that the Senate had come to a deal, with no strings attached and was in addition to the current Energy Bill of $25-billion, the markets soared. However, that was poppycock. There was no new deal. There was no deal outside of the Energy Bill's money, and there certainly won't be a Bill without any strings attached. I wonder who floated that story and made a bundle.

When the truth came out, the markets settled back to the middle of the day's range. And then, when a little more time evaporated, the late day move happened (again) - down. But don't blame the massive moves lower due to the Automaker and UAW shakedown falling on deaf ears (for now), there were serious other problems in the market today: CMBS, Citigroup, weekly unemployment claims and the Yield curve.

Before the open the government released first-time claims for unemployment insurance, which unexpectedly rose to the highest level since 1992. Since this is a sure sign the labor market and economy in general are deteriorating, stocks started the morning much lower.

Initial jobless claims increased by 27,000 to a higher-than-forecast 542,000 in the week ended Nov. 15, from 515,000 the prior week, the Labor Department said today in Washington. The number of people staying on benefits rolls the prior week rose to 4.012 million, the most since December 1982.

Although this isn't good news, is it surprising? It's only surprising to those that expect the economy to revive because they need it to - and pronto. Of course, I'm referring to the endless parade of so-called experts we see on television every day, whose clients are losing fortunes, who claim that the bottom is in and expect the data to prove them right. These so-called experts refuse to see the data as it is - bad - and prefer to continue whistling past the graveyard.

Citigroup, Goldman Sachs, Ford, GE, JPMorgan, and some tech firms have all announced massive layoffs that are not even part of this data. Therefore one should expect the unemployment news to get worse.

Commercial Mortgage Backed Securities (CMBS) are the latest real estate security implosion. This problem has been brewing for a while now, but yesterday risk premiums on commercial mortgage-backed securities spiked, at one point 7000 basis points over treasuries. The cause of this was the news of two very large commercial mortgage defaults.

Now the market is seeing some cracks in the foundation, some loans are starting to have difficulty, and people are becoming aware of how pervasive the debt bubble is," said Sean Dobson, chief executive of Austin, Tex.-based Amherst Holdings, which specializes in trading mortgage-backed securities. He went on to say - We think the lax lending standards used in residential mortgages were mirrored in commercial mortgages.

Mr. Dobson is advising his clients to sell their CMBSs. His clients must be players, because most CBMSs are apparently held by insurance companies and pension funds. If you are still long insurance stocks, you may want to inquire on their CMBS holdings.

Citigroup was back in the news today. Its share price has been plummeting, now trading below $5-share! The brass at Citi must be getting very nervous as they surely know that once a stock falls below $5-share, many mutual and pension funds are not allowed to own them. They must sell these stocks according to their own prospectus' and bi-laws.

This nervousness had Citibank making a preposterous claim today: it's the short sellers fault. Well, at least Citi insinuated it by asking the SEC to reinstate the short-selling ban on its stock. Although that didn't work before, they're asking again. But even the insinuation is ridiculous. Citigroup's own records show that, as of Oct. 28 2008, short interest in the stock is under 3%! If Citigroup doesn't understand how silly this accusation is, it's just another sign of incompetence.

Moreover, although Citigroup is in frantic need of capital, it is still paying a large dividend on 5.4 billion shares. What's more ridiculous; blaming a few short sellers, or paying a fat dividend on a titanic amount of shares when you are dying for money?

It's bad enough now that just this evening I'm learning that Citigroup Inc. is considering auctioning off parts of the firm or selling the company outright. The online edition of The Wall Street Journal, citing unnamed sources, reported that Citigroup executives are in preliminary stages of discussing a possible sale. The report said that the company's management is still insisting that it has ample capital and a sound strategic direction, though its shares fell a further 26% Thursday.

Even another large share buy by Prince Al-Waleed of Saudi Arabia didn't help today. If they can't sell the bank, I hear Citibank is considering renaming itself to either Saudibank or Shitibank. My money is on the former.

I'm not sure if today's 30-Year bond rally was a cause or a symptom of the stock decline, but I do know it was breathtaking. Prior to today, the greatest move (+ or -) I had ever witnessed was about 3.16-points. In normal times, a large move is considered 1.00-point. Today's advance was breathtaking because it was +7.16! This sort of increase is usually seen over the period of several YEARS, not hours.

The only thing that could cause this is fear, and if it continues we will see more money leave equities for the safety of Treasuries. The last time this sort of thing happened was during the Great Depression. Let's hope today was a one-off event, a blow-off top if you like, that reverses tomorrow.



Previous Day's Trading Room Results:

Trade Date: 11/20/08

E-Mini S&P Trades*
(before fees and commissions):

1) A few trades weren't filled today, however, there weren't many to start with.

2) Algorithm positions (16)...combined daily total...+1.25

ZB (30 Year Bond) Trades*
(before fees and commissions):


1) No trades today.



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