Small Cara 100 Update:

GOOG - Price Target Lowered from $590 to $570 @ UBS.

Those of you investing in leveraged or inverse proshares ETFs like SKF, please take note. I asked them who the counterparty is. This is their answer:

"Thank you for your email today regarding ProShares. At this time, ProShares LLC does not disclose the counterparty names for the derivative products within the portfolio. Please refer to the attached prospectus for further information on the UltraShort Financials fund.

Sincerely,

ProShares Shareholder Services"

SiO2, what do you mean by counterparty? Thanks

g52- keep in mind that RRPIX and DXKSX also fall into the category of inverse funds with counter-party risk....

Re: Airlines

Here's Morgan Stanley on airlines

Seeking Alpha

http://tinyurl.com/2pttdd

15 Tonnes of Gold Goes Missing

It looks like French Societe Generale has now lost 15 tonnes of gold. Keep in mind that this is the same bank where supposedly a "rogue" trader lost 7+ billion in funds. I am sure investors with this bank must be mightily impressed with internal risk control.

Other questions raised on this latest development are why would Societe be selling such a massive amount of gold in the first place and why would they sell it on the Istanbul Gold Exchange rather than the much more liquid, respected, and closer London Gold Exchange??

Regards - Fireworks

http://tinyurl.com/36hht7

Regarding a subtopic yesterday in this blog about charitable actions. Please consider making The Hunger Site a link on your computer: http://tiny.pl/5n1d. This page has been my "home page" for a long time.
If you designate this page as your opening page you may find that you begin each day thinking of others. I have found that this action, however small can have wider consequences for me.
Thank you Bill for providing this site as a sharing ground.
Peace from the beautiful North Puget Sound

Hi,

Tomorrow morning a sales executive from Deutsche Bank is visiting our office to convince us to promote their ETFs to our Clients.

My focus for the meeting will not so much be the ETFs themselves, but counterpart risk issues, and more in particular I will be lopking to get specific information regarding the depositary entities and liquidity levels of these ETFs.

If any community member wishes to ask questions please let me know and I will ask them and report back.

Cheers,

SMN- opening a position at 38.71/39.15...

Shred, I am sure others can chime in here.

"Within the financial services sector, the term market counterparty is used to refer to governments, national banks, national monetary authorities and supranational monetary organisations such as the World Bank Group that act as the ultimate guarantor for loans and indemnities. It can also refer to brokers, investment banks and other securities dealers that serve as the contracting party when completing "over the counter" securities transactions. The term is generally used in this context in relation to "counterparty risk", which is the risk of monetary loss a firm may be exposed to if the counterparty to an over-the-counter securities trade encounters difficulty meeting its obligations under the terms of the transaction."

maromatics: yes please, can he spell out the names of the banks?

FXP- 99.95...

Shred,

The risk that the other party in an agreement will default. In an option contract, the risk to the option buyer that the writer will not buy or sell the underlying as agreed. In general, counterparty risk can be reduced by having an organization with extremely good credit act as an intermediary between the two parties.

The key to daily swings is interbank liquidity?? To this layman, I can see its importance wrt swing magnitude, perhaps.

But is there really a 'key' to daily swings? This tape has been news-and-hysteria driven, (in both directions) for a while now. Don't see it stopping until the magnitude of earnings losses across the whole economy become more apparent.

And in regards to Aurator's AF mixture post: 14.7:1 is, as I understand it, the balanced (stoch) chemical equation and thus all the air is burnt during combustion. A leaner mixture will improve efficiency, but I shudder at the thought of every car & truck in the US spewing out higher NOx levels, the resulting ozone depletion, acidity increases, smog, etc. Shouldn't be using gasoline anyway - internal combustion engines have a mechanical efficency of 20%. More energy is lost as heat than turning the wheels.

Based on a tickerforum thread on counterparty risk I linked to last week, UBS admits to being a counterparty to the ultras.

adding QID @ 48 and change...

"Regarding a subtopic yesterday in this blog about charitable actions. Please consider making The Hunger Site a link on your computer ..."

A good idea. But the link doesn't work.

Try this: http://www.thehungersite.com

XLF kissed its downtrend line and 100 day moving average yesterday and promptly sold off, leaving a big up pointing tail. Based on this I am back in SKF for a day or longer.

sio2 - thanks for posting re ETFs and coounterpartys. I had posted a couple inquiries to this forum about that concern. Sounds like the concern may be real. Especially in a hot, fast changing market the risk could exceed the return, and at exactly the moment you hope to score big your whole investment could fail. Something like RRPIX vs TLT, for example. Consider the extra risk & unknown for 125% return vs 100%. Just am not convinced it is worth the extra risk.

maromatics, been there done that with the Deutsche salespeople - careful, they pretend they know these things but don't. You will want him/her to connect you directly to the trading desk operators in NY to hear it straight from the derivitative peoples mouth.

They have been trying to get me to do their structured products for ages and refused due to lack of understanding in something that seemed too good to be true. Last week I was able to talk to the DB derivitive desk and their trader who actually creates the hedge then goes out and finds a counter-party for them. Needless to say I still took a pass. Anyway my point is bypass the salespeople to get the truth.

any thoughts on Val Gold?

i know many of us follow the stock on this board, and its price action has left much to be desired the past while. even today we are down on sluggish volue.

was there any new developments during the PDAC about Val?

always appreciated.

Improve your vocabulary and feed hungry people at the same time:

http://www.freerice.com/

Geckojb,

Thank you for your good advice. I will try to get the derivatives desk contact, let's see if I can get it.

Re: Societe Generale

Looks like they leased out the gold and the bullion bank made off with it, or sold it outright. Raises the question of whether bullion banks really have any bullion, or had it seized by their counterparty because of secondary lien derivatives.

Last week when everyone was going to cash for the weekend I bought SEED at 4.60.

Wow.

seems to be all about the falling USD right now...

Dr. Cosa,

VAL finally issued an update on Los Patos the other day check it out at their website. Not a ton of info but they gave a timeline for a release of drill results by the end of April. At least a bit of clarity on a timeline. I also like the recent upward activity in KRY and GRZ that may be signaling there is a chance of getting a mining project off the ground in VZ. I am prepared to hold for drill results as Los Patos is a great property.

GL to all in surviving the VAL waiting game.

-----------------------------------------

On another note, XOM looking pretty weak today.

Federal Government Incompetence

Last week the IRS sent out a notice of the upcoming "spend it when you get it" payment to the 130 million Americans who file tax returns.

How much did that cost? Probably a buck a piece for paper,printing and delivery.

More typical wasteful government spending.

dr. cosa,

There is a discussion over at stockhouse.com which seems to have a lot of adherents. It just takes time to wade through all of the commentary to find important bits of information:

http://beta.stockhouse.com/Bullboards/SymbolList.aspx?s=VAL&t=LIST

US Consumer Confidence at a 30+ year low, numbers last seen during the oil embargo.

Believe the rally if you want; prices ultimately always follow the real economy, and 70% of the US Economy is consumer spending.

Anyone who thinks that a 10% decline in confidence numbers month-over-month, when coupled with rising price inflation expectations, will not translate directly into consumer behavior and ultimately equity prices needs to have his head examined.

Oh, and impeach Paulson and Bush for what now appears to be a continuing "spread" of The Fed - now setting up LLCs (clearly beyond their statutory authority) - http://financialpetition.org

The least I can say is that it is bitterly ironic that someone who voted for that incompetent not once, but twice, is now calling for his impeachment.

Looks like the Fed is in luck. Treasury yields have improved to 1.14%.

http://finance.yahoo.com/bonds

Thanks guys!!! I knew there had to be some hidden risk or downside to ETFs, they are just too awesome. I made good money using ETFs. Plus, there are so many of them, someday a few of them must go under.

While I am here.........Walmart Easter Update.......Supercenter sold 9 skids of bananas, 6 skids of water, on saturday alone. Easter isle, or WMT calls seasonal, almost 100% sold out. Sales through the roof this weekend. I find it funny, because at my other job, families say they have no money.

GG up 7%??
Strange

vinod- joining you on ESLR at 8.34...thanks for giving us the hiring news last weekend...

you may also be interested to know there is a significant short position in the stock, which may provide a floor:

"SqueezeTrigger Price of $8.514. To access SqueezeTrigger Prices ahead of potential short squeezes beginning, visit http://www.squeezetrigger.com .

From January 2005 to February 2008, an aggregate amount of 512433152 shares of ESLR have been shorted for a total dollar value of $4,099,465,216.00. The ESLR SqueezeTrigger price of $8.514 is the volume weighted average price that all shorts are short in shares of ESLR. There is still approximately $126,231,264.00 of potential short covering in shares of ESLR.."

good luck

Maromatics:

Thanks for your offer to help us understand inverse etfs.
As I understand it, the inverse etfs are "swaps" which are based on unfunded exposures to an underlying asset. Traders make money or lose money based on the movements in price which are expected to correlate inversely to the underlying assets. But there are many times when the correlation is imprecise. For example, SDS which is expected to correlate inversely on a 2:1 ratio to the S&P, often correlates at less than 1:1, especially on day a like today when the S&P is down.

If there is a large responsible counterparty which is constantly involved and constantly and instantly delivering and receiving a stream of cash which flows in opposition to the underlying asset, I cannot understand the numerous correlation failures unless there are many failures to deliver on a constant basis which are not reported as such, but are simply minimized as a failure to track. Please ask if there is a different. explanation.

2nd, I like ESLR as well, they have suffered along with other solar energy stocks and small caps in recent months, but I believe they are one of the companies that will show secular growth in a recession.

Nice balance sheet, too. Very little debt.

A good risk/reward profile in these turbulent times.

DUG- opening a position at 39.87...

Hey, who moved my ESLR! :>)

seems as if there's interest!

kp84- the company is stocking up ahead of the options they will be offering to those new employees...;)

ESLR: This is a very nice trade setup. But I also like it because it confirms the move FSLR is making. FSLR is, as we speak, breaking up out of a massive symmetric triangle on the daily chart. If the rest of the sector is confirming, the FSLR move could be quite nice.

2nd
ESLR's been gathering dust on my watch list for a bit.
I jumped in at 8.46 this morning to add to my LT spec allocation; must admit it falls into the "buy now, do your DD later" category of trades, but the opportunity hit me and accountable to myself only. ;)

TWM -

Get a .2536 div x today payable 3/31. Nice getting a dividend on a short position.

There has been a large amount of speculation as to why JP Morgan would want to Purchase Bear Stearns.

Bear Stearns, like most of the other HB&B are insolvent. Bear Stearns is an example showing that when a firm is leveraged 34:1, even a small loss in the underlying assets can wipe out the entire capital position.

Here is some more food for thought:

JPMorgan Chase, the company that took over Bear, is leveraged 74:1.

JPM has $74 in derivatives contracts on its books for every $1 the bank has in capital. These financial instruments are so complex that Fed Chair Ben Bernanke recently needed a face-to-face refresher course from hedge fund managers. Buffett calls derivatives “financial weapons of mass destruction”.

According to the Comptroller of the Currency Report, JPMorgan has $91 trillion worth on its books. Yes, you read that right... $91 TRILLION.(http://www.occ.treas.gov/deriv/deriv.htm)

#2 CITIBANK NATIONAL $34 Trillion
#3 BANK OF AMERICA $32 Trillion
#4 WACHOVIA BANK $ 5 Trillion
#5 HSBC BANK USA $ 4 Trillion

To put things into perspective:

The entire annual U.S. gross domestic product is about $15 trillion (http://tinyurl.com/7mx8e), World Bank Statistics.

The entire world’s GDP is approximately $50 trillion (http://tinyurl.com/7mx8e)

Total value of the world's real estate is roughly $75 trillion (I can't support this, yet)

Derivatives used to be for hedging only... a way to offset risk. But Wall Street has turned derivatives into a lucrative source of fees and investment gains, ballooning from $100 trillion to more than $500 TRILLION in just the last 5 years.

As a rank amateur, I can not fathom how all of this pans out in terms of the illegal Fed bailout and/or with JPM's huge dealings in Gold and Gold derivatives.

Could anyone expand on this?

Ron

Re: derivatives

I believe that large banking institutions and their brokerages are losing market share to CFDs. The more the HB&B load on their own derivatives, the more they corner market share.

ron- i have no expertise whatsoever on the subject, but from your description it sounds as if brokerage houses transformed the derivatives market from its original function (insurance) to one whose primary goals were to generate fees and encourage speculation...

Sentiment has definitely changed.

Terrible housing price news and latest consumer confidence report being basically ignored.

Maybe Larry Kudlow is right.

Not!

:^)

ALOHA !!

maromatics ... I am not sure what country you are in ... UK or OZ? Which mate?

I have some questions for the ETF Kings!

1-Are "illiquid securities" held as assets and if so by hwat percentage are they allowed as holdings?

2-Many ETFs lend shares on their index type holdings. Is this a practice and if so how much do actual investors benefit from this practice, since the shares being lended are being used to short the ETF holdings? How are the fees split with the management company and ETF?

3-Many ETFs have large cash positions. Where is that cash invested? Many US based ETFs use "debt instruments" to park cash holdings. What counterparties are tied to such cash positions? Is hedging employed in any way to insure cash?

4-Under what circumstances would "Earlt Close" or "Trading Halt" be inacted?

5-Explain "Leverage Risk" as it pertains to the "double" 2x ETF?

6-Who is the the custodian bank?

7- Who is the administartor?

8-Who is the index recipt agent?

9-If all of the above(questions 6-8)are one entity then explain how the "conflict of interest" risk is spread by such a strategy?

I know all the above works at the Proshares ETFs and it is scary! I can't imagine any other global ETF operates much different!

IT WORKS UNTIL IT DOESN'T ... Just ask any BSC shareholder!

We are in the denial faze of the bear market and the media is helping the public to embrace their denial.

Kaimu and others,

Thanks for the inputs.

I will ask allo those questions.

denial 'faze' is right, man...

Kaimu,

Bill knows who I am, and where I live and work.

Please forgive me if I do not wish to share that information openly on the web.

Anyway, everyone nows I am based in Europe.

Cheers!

A thought about existing home sales and the home builders:

I wondering if existing homes would be under greater pricing pressure than new homes? I.e. foreclosures and distressed sales. That, plus the excess inventory and large number of vacant homes makes me think that existing home sales will show better numbers (in volume) than new home sales.

If that is the case (and inventory/vacancy numbers are known to be ugly), I would imagine there will be continued pressure on the home builders for quite a while yet. I.e. existing home sales showing improvement may have little implication for new home sales.

disclosure: long SRS

The same clowns who were saying there is no bear market are saying the bear market is over. I don't know how the public tolerates such blatant agendas.

Technicians - any chance GG is a short here at
high 39's
Lots of resistance at 40 I see in charts.

Denial it is... but to trade against it timing is crucial, lest one be steamrolled in one's "denial of denial"... I'd like to offer this follow-up to previous post on the topic:

http://tinyurl.com/37q6od

SEED: Feels like all the buy stops at around 6.25 are about to be run.

Above that there's a HUUUGGGEE overhead gap needing filling.

http://tinyurl.com/2fol5c

vad- one cool dude, man...when you move to a foreign country and you trade to survive-> your site is loaded, IMO...

when ever im about to panic with gold,
Jim Sinclair always puts things in perspective

-----

www.jsmineset.com

Tuesday, March 25, 2008, 11:44:00 AM EST

Long Term Bull Trend Continues Intact
Jim Sinclair

Dear Friends,

I have never had a problem saying exactly what I feel about markets.

Most people are afraid to climb out on a market limb without a caveat to save them. The caveat of popularity is if this happens, do this, and if that happens, do that. That caveat makes the speaker always right even when wrong.

I know the major minds in gold so it is suffice to say I have been to the mountain and returned with great support for my firm opinion.

Allow me present my view that there is NO damage to the underlying long term BULL TREND, nor will there be. Major support is at Angel $887.50 which does not need to be tested.

The low we touched was also a major level of support, to the penny.

Gold is going to $1650. As I see it, that is totally intact. Those writers who so indignantly bash gold are SIMPLY WRONG.

It will take a few weeks, not a month, to rebuild the base for gold. Thereafter we will once again assault $1000. A return to $1000 without chopping sideways first would again be blunted.

That rebuilding will take place.

The range in gold from $1033 to the low $900’s is not, nor is any other one day move, unusual in gold.

There were up and down moves in the $300 range in the late 70s, sometimes netting a $150 change in a trading day. This is gold and will continue to be. As we move forward to 2009 the volatility will only increase.

Sincerely,
Jim

The denial can make you money both ways as it lifts oversold stocks and sets up new shorts at solid resistance.

For the junior miner players out there, I have some news:

Breakwater Resources (BWR) will be laying off 30% of their workforce at Myra Falls, one of their largest producing mines located in Campbell River, BC. I know there are some Caraistas invested in this company.

Be Careful!!!

Cheers

2nd_ave... thank you. Moving itself was "Holywood kind of story", maybe some day at the beach, swapping tales :)

Meanhwile SEED is about to attack that 6.25

2nd, Vad, it's funny you mention that: part of my desire to become a better trader is to become a more self-contained unit, capable of moving myself anywhere, be it some place like Panama, or who knows, the Bahamas...

Meanwhile, CMG, which I noted from the short side a few months ago, has spent the past week or two "reloading excessive P/E" from which profits can be extracted when it, once again, rolls over. Keep it on your watch list. Selling calls as it begins to slide has worked out great before and will again.

Dr. cosa,

The price suggested by Jim Sinclair in the post you quoted for support for PoG is exactly the 38,2% fibonacci retracacement of the entire swing from Aug 16th, to the penny.

If, as, and when a bottom forms at or around that level, the correction will be over and the bull can resume.

Bottoms are not an event, they are a process.

These technical levels are not set in stone. They simply outline areas in which more support is expected.

If a bottom ends up forming at those levels, then I agree with Sinclair that such will be a very bullish signal, one that means that pretty soon after that happens 1.000 may be challenged again.

JMHO.

Cheers!

Stopped out of SKF earlier with a few percent. Picked up some FXP @ 96.23
Will get out if FXI gets above 135 and holds.

MikeNYC... I like your idea, you envision much more pleasant way to move than the one I had to undertake :)

I like Hawaii... Big Island is my fave, can we make it neutral territory? Kaimu for President?

GOL had a buy alert a few days ago and is about to break the downtrend line on the daily chart. Looking like a nice setup.

Bought FXP @ $96.40

Sold: COF puts

Holding SKF

Dr Cosa,
Whenever you get those feelings--as I do as well--don't forget Bill Cara, Doug Casey and Jim Rogers.
Or ask yourself this question: With everything that has occured--the cataclysmic events in the financial sector (HB&B)--do you really feel comfotable holding dollars. I am of the oppinion that we face one moster of an inflation risk.

Cheers,

Gus.

Re: Breakwater
I traded BWR actively between 1989 and 2004 and made a lot of money on it though I was underwater for several years. If you look back at the long-term history of this company you will see that it fell from $20 to 4 cents before recovering back up to about $3.70. I believe that there has been little change in the resources of the company over all that time. BWR has shut mines down in the past when zinc prices were low and reopened them when zinc prices were high. I think it's because the assets aren't very high quality and some mines became uneconomical. BWR's stock price seems to follow the price of zinc. Ned Goodman controlled BWR through Dundee whewn I was trading it and this kept institutional buyers away. I don't follow the company anymore so, I don't know if that is still the case. I can offer no opinion as to where the share price will go in the future. I just want to let everyone know that BWR was and probably still is very volatile.

I have up close and personal experience with Breakwater and concur with Fred - volatile at best with weakto mid calibre management.

QID- adding at 47.18...

Distribution hour begins!

Getting good performance from:

DGP, PAL, SEED (wow!)

Bought: SLW, WGW, ESLR, looking at FXP, FRG.

~~

Sorry for the rant about squandering energy. Get in those moods and will try to stay on topic and post things useful for investors.

~

Fatty: Yes you run the engine hot and lean and use a reduction catalyst only. Wide band O2 sensors to set exact AFR. Ethanol would not have been necessary or desirable (yet at least) hae we done this instead.

Re: ETFs

How do they obtain their liquidity?

bad 5-day run for the shorts- adding to DUG/SMN here...

ecck SEED... 700 dollars on a cheapie - daytrader's blood is boiling :) I'll leave it to you patient types to get more out of it!

Anyone seen LIBOR lately. It could be the tell that everything is not great with the credit markets no matter how many time Cramer says so.

Ever since the FED lowered to 2.25 LIBOR has been rising and is currently at 2.65 for 1-month and 2.66 for 3-month.

If the credit markets were functioning normally 1-month would be at 2.3 and 3-month at 2.35.

Actually, since everyone expects Ben to keep cutting, they should be lower than the FED funds rate like they were before the latest cut.

Rob.

FRG: I met Mark O'Dey a couple years ago and was impressed.

"March 25, 2008
Fronteer's global exploration program aims to double gold resource base

08-09

Fronteer Development Group Inc. ("Fronteer" or the "Company") (FRG – TSX/AMEX) is pleased to announce a global exploration program that aims to double the Company’s gold resource base over the next two years.

Among its extensive pipeline of gold projects in Nevada and northwestern Turkey, Fronteer currently has a full or partial interest in five growing gold deposits with NI 43-101 resource estimates. Fronteer’s current attributable global estimate comprises:

A measured and indicated resource of 3.72 million ounces gold equivalent; and
An inferred resource of 1.15 million ounces gold equivalent (see table below).
Fronteer aims to add significant gold ounces to its resource base and Company value by expanding existing deposits with NI 43-101 compliant resources ounces, completing project-first resource estimates and finishing preliminary economic assessments.

"We believe there is an opportunity for Fronteer to become the next high-quality, mid-tier company in the gold sector," says Fronteer President and CEO Dr. Mark O’Dea. "Over the next two years, we aim to add another five-million gold-equivalent ounces to our resource base and advance key projects toward development. Several of our most exciting projects are currently unquantified in terms of their size and intrinsic value and are anticipated to play an important role in Fronteer’s near-term growth."

Through various agreements and strategic investments, Fronteer will have exposure of up to $67 million (all financial terms US$) in exploration/development at a cost to the Company of approximately $16.4 million (see table below).

Fronteer has also strengthened its senior geological team with the recent additions of Chief Exploration Geologist Dr. Ross Sherlock, formerly of Miramar Mining Corp, and Senior Geoscientist Dr. Moira Smith, formerly of Electrum USA and Teck Cominco. Sherlock played a senior role in exploration programs at the Hope Bay project which led to successive significant resource expansions and ultimately the acquisition of Miramar by Newmont Mining Corp. in late 2007. Sherlock will focus on Fronteer’s advanced projects, including definition drilling, resource expansion and resource modeling. Smith played a major role in the discovery and delineation of the Pogo Gold Deposit in Alaska with Teck Cominco. Smith will be actively involved in developing new promising targets among Fronteer’s early-stage Nevada gold projects. ..."

Would it make sense to short an ultralong rather than to buy an ultrashort, to avoid counterparty risk?

Steve C -

I was thinking the same thing last week. I've shorted them before when the bottom is in.

O'Dea was the one that won the competition to find the next high grade deposit at depth for Goldcorp., several years ago, when there was an internet-based competition sponsored by Rob McEwen. (at least I think it was him. Please somebody correct me if I'm wrong.)

ANYONE WANT TO SEE WALL STREET IN PURE MANIPULATION>
Chk GG .

Up 7.25%!

Why is GG manipulation? Stock got slaughtered the last week or so, combination of shorts covering and bargin hunters....

Allright. The market looked weak today so I bought some 126 June DIA puts. Cheers to the next crash.

Rob.

GG > being up 7.25%

ABX and NEM and various others bounced 3-4%, and fell far more than GG in the past week!
To me, its a set up

Note the "strength" all day...MM brought it up to clear out shorts.

NEM would have to be at 51, ABX at 50 to equal
GG being only 10% away from highs

Seems fishy to me

I agree that GG was up more than the other gold companies...so with all this 'fishy' behavior, did you sell out or go short?

Chinese Regulator Authorizes Commercial Banks to Trade Gold Futures

By Li Chunlan
25 Mar 2008 at 09:26 AM GMT-04:00

SHANGHAI (Interfax-China) -- The China Banking Regulatory Commission (CBRC) yesterday issued permits allowing Chinese commercial banks to trade gold futures on the Shanghai Futures Exchange (SHFE).

http://www.resourceinvestor.com/pebble.asp?relid=41414

Randgold was up 7.85% today.
Maybe there's more to this....

Hi,

Please correct me if I am wrong:

- March 26h: COMEX April Gold options expiry
- Marcg 27th: COMEX March Gold futures last trading day
- March 31st: CBOT April Gold futures first notice day.

Some traders in gold futures tend to avoid being long the few days before notice day as it seems there is a tendency for commodity futures markets to go down prior to notice day.

This is of course not a trading advice.

Maromatics:

You are not wrong. In fact, a smackdown seems to occur not long before each expiry and also about a week or so before each Fed cut announcement.

There was a huge open interest in calls at 950. Tens of millions of dollars worth. No surprise those are finishing worthless. Add in the rest of the strikes between 950 and you can see why this was desired by those that were short. Nor is this an isolated occurrence.

MikeNYC

Thanks.

Maromatics,
about the Deutsche Bank ETFS, please can you also ask a question about many ETFs it proposes:
Reading the brochure for example of ISIN LU0292100806 (ETF DJ Stoxx 600 Basic Resources) I see that the ETF will track the index with Swap OTC and derivatives. So: where will my money be? Will it be safe? Can DB use my money "against" my investment purpose (at the end, if the index goes down, they give me back less money...). If I read for example the brochure of the competitor ETF from Lyxor (ISIN FR0010345389) DJ Stoxx 600 Basic Resources, it seems to me that the situation is similar. Am I wrong? Do we really have a real counterpart risk with ETFs (not only the DB for example, but also the counterparts involved in the OTC swaps and derivatives!)?
What happens if the counterpart is another Bear Stern and the European Central Banks do not save it?!?

maro:
Prior statements possibly subject to Observation Selection Effects, of course.

;-)

WSJ -

Clear Channel Communications'
Privatization Deal Is Near Collapse
By MATTHEW KARNITSCHNIG and HEIDI N. MOORE
March 25, 2008 4:49 p.m.

The $19 billion privatization of Clear Channel Communications Inc. was near collapse as the private equity firms behind the deal and the banks financing it failed to resolve their differences over the terms of the credit agreement, people familiar with the matter said.

The mood around the deal has darkened in recent days as the talks between the private equity firms -- Thomas H. Lee and Bain Capital Partners LLC -- and the banks became mired in the details of the credit agreement, the people said. The banks that agreed to finance the deal include Citigroup, Morgan Stanley, Deutsche Bank, Credit Suisse, RBS and Wachovia.

Not sure if LEH is still a Cara 100 stock, but I believe that Bill was in the process of replacing it...correct? Looks like this action should be sooner rather than later....

(disclosure: I'm short LEH)

Questions Linger Over Lehman's Balance Sheet

Conde Naste is writing about Lehman's Debt Shuffle.

Investors were thrilled when Lehman topped earnings expectations on Tuesday—as the firm took pains to reassure the markets that it has plenty of cash to ride out the turbulence. Yet aside from a smattering of attention here and there, investors and the media mostly overlooked the balance sheet. In other words, they forgot what happened mere hours earlier with Bear Stearns. Wall Street’s short-term memory is notoriously lousy, but this must set a record.

What actually happened to Lehman’s balance sheet in the first quarter? Assets rose. Leverage rose. Write-downs were suspiciously minuscule. And the company fiddled with the way it defines a key measure of the firm’s net worth. Let’s look at the cautionary flags:

Lehman’s balance sheet isn’t shrinking.

Lehman finished the first quarter was total assets of $786 billion, up almost 14 percent from the previous quarter and 40 percent from a year earlier.

Lehman got more leveraged, not less.

The investment banks “gross” leverage hit 31.7 times equity, up from the fourth quarter and way up from last year’s 28.1. According to Brad Hintz, an analyst with Bernstein Research, Lehman’s leverage reached its highest point since 2000.

Lehman reaped substantial earnings gains because investors thought it is more likely to go bankrupt.

For several quarters, all the investment banks have been taking gains on their liabilities. Say you owe $100 to your friend. But you run into severe problems and your friend starts to figure you can only afford to pay back $95. If you were an investment bank, the magic of fair value accounting dictates that you could get to reduce your liability. What’s more, that $5 gain gets added to earnings. Because investors thought Lehman was more likely to default, its liabilities fell in value and Lehman garnered earnings from this. How much did Lehman win through losing? $600 million in the quarter. How much was its net income? $489 million.

Lehman’s write-downs seem tiny.

Lehman finished the quarter with $87.3 billion of real estate assets. These include residential mortgages and commercial real estate paper. The bank only wrote these assets down by 3 percent. And its Level III assets —the hardest to value portion of these instruments—were written down by only the same percentage.

Lehman remains exposed to lots of dodgy mortgages, including a group labeled: “Prime and Alt-A.” Prime mortgages represent loans to good quality borrowers; Alt-A loans go to borrowers a mere step up from subprime, and represent an area with almost as many problem loans as subprime. The total amount of such mortgages on Lehman’s balance sheet was $14.6 billion in the first quarter and it actually rose from $12.7 billion in the previous quarter. Is this the time to be increasing exposure to questionable mortgages? More ominously, only $1 billion of that figure is prime and the rest is Alt-A, according to Hintz’s estimate.

The picture emerging is that of an investment bank that is dancing as fast as it can.

Great Moments In Accounting

Back in September 2007 the Wall Street Journal wrote about Great Moments In Accounting.

Thanks to a relatively new accounting rule, firms like Morgan Stanley, Lehman Brothers and Goldman Sachs last quarter booked hundreds of millions of dollars in gains based on worsening perceptions of their own creditworthiness.

How does that work? If the market decides a company is a bigger credit risk and starts demanding fatter risk premiums to buy its debt, the value of its existing debt falls. Under a rule being phased in throughout corporate America known as Financial Accounting Statement No. 159, that same logic applies to a company’s own debt. Companies that mark their liabilities to a market price, as Wall Street usually does, thus record as revenue a drop in the value of their own debt obligations.
Accounting experts said the exercise is perfectly legitimate, particularly if firms that mark liabilities to market do the same with their assets. At the same time, it highlights one of the ironies of so-called fair value accounting. “If you have a liability that declines in value because your credit worsens, you have a gain,” said Stephen Ryan, associate professor of accounting at New York University’s Stern School of Business.

FAS 159, which brokers are adopting earlier than most companies, couldn’t have come at a better time for Wall Street. The firms are taking writedowns of billions of dollars to reflect the lower value of leveraged buyout loans and securities backed by mortgages and other assets that are stuck on their books.

The Balance Sheet Is The Future

Let's now review Minyan Peter's post on Bank Earnings 102 also from September 2007.

[Here is] one simple rule for financial services firms: The income statement is the past. The balance sheet is the future.

Let me repeat it again. The income statement is the past and the balance sheet is the future, especially now.

At the top of a credit cycle, the income statement for a financial institution shows “the best of times”, but buried in the balance sheet is “the worst of times” to come.

Judging from what's happening to its balance sheet, Lehman's future looks bleak.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

It ain't over yet! Looks like GS agrees w/ Bill and some of us here. They're saying credit losses may be $460 billion or 4 times what's been disclosed so far leading to declining earnings. I'll w/ GS's info and not the talking heads who are calling a bottom.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aIGeO4anyk.c&refer=worldwide

ETF's and counterparty risk from BNN.ca

hope the link works.

BNN - The CTV Broadband Network

sorry, here we go:

http://broadband.bnn.ca/bnn/?sid=205&vid=40468

A software engineer in Palo Alto loses 17% parking his money in Schwab's Yield Plus fund, until last year considered a slightly higher-yielding alternative to money market funds:

http://tinyurl.com/2d5n4g

excerpt:

"Marc Itzkowitz, a software product manager in Palo Alto, invested more than $100,000 in the fund, starting in summer 2005, to put toward a down payment on a house.

"My forecast was, toward the end of the decade there would be a fall in real estate. I'm a renter. I wanted to park money in something that would be safe so when prices declined, I'd have my payment preserved," he says.

Itzkowitz says his financial adviser with Schwab Private Client Services recommended the YieldPlus fund. "It was sold to me as a money market equivalent fund," he says.

When he noticed the fund was losing value, he asked his adviser if he should move it into certificates of deposit, but the adviser said no.
$23,000 loss

Itzkowitz really started worrying about the fund in February, but didn't sell until last week, when his adviser told him to get out. Itzkowitz lost 17 percent, or about $23,000, enough to impact his home-buying plans.

He takes part of the blame himself. "It's my bad. You should never believe you can get higher yields without any risk," he says.

Itzkowitz put me in touch with his adviser, who declined to comment, referring me to Schwab, which had no comment beyond this brief statement:

"The YieldPlus portfolio is made up of securities with an average AA credit rating, but unfortunately, the fund has been negatively impacted during the past few months, primarily by liquidity problems in the fixed-income markets.

"However, the fund continues to deliver a strong yield, which is currently 5.94 percent. Our fund managers are working hard to try to preserve investor value in these difficult markets. We cannot predict when the markets will turn around and improve."

Reed Kathrein, a Berkeley attorney who has filed a suit on behalf of YieldPlus shareholders in district court in the Northern District of California, says, "Investment advisers have been up in arms about this whole thing."

Many got their clients into the fund, thinking it was as good as cash. When they saw it going down, "they either advised their clients to get out or got their clients out."

"We cannot predict when the markets will turn around and improve."

No? Wow, whatever happened to blue-eyed "Don't try to time the market, in a long run it always goes up"...

Honestly, every time I see all those fancy framed certificates, with gold seal of approval of course, on the walls of another office of another bank officer while hearing how skillfully they would be managing my money, I feel great temptation to ask "Have you made any money in the markets operating your own trading account? 'cause if not and all you have is some courses you went to in order to get those certificates"...

Ugh, necessary and critically important correction: sometimes seals of approval are red.

Update On Physical Silver Shortage

Jason Hommel provides an update on the current silver shortage in the attached link. In addition to shortages across much of North America, the latest reports indicate that the supply problem has now spread to China, Dubai, and Australia.

Regards - Fireworks

http://tinyurl.com/26ttbz

Are Money Market Funds the next to crash?

http://tinyurl.com/2xxkds

IMHO, a must read.

2nd: Here's the place....:>)
http://tinyurl.com/35lb7g

Jim Grant calls Fed Balance Sheet an "Economist Nightmare". 15 min. video (Bloomberg):

http://tinyurl.com/yw9gu7

craig- what's bothering me is they're classifying the Schwab Yield Plus fund as an ultra-short bond fund...which, of course, is how i would characterize RRPIX and DXKSX...so i'm starting to like SteveC's idea of shorting the ultra-longs even more...

Jason Hommel IMO is not to be trusted. He follows something he calls 'Biblical Capitalism' and uses this to adamantly predict that silver will go to thousands of dollars an ounce.

Just my opinion.

Silver: Not sure to make of these shortage articles. I bought quite a slug early in the year, until the SD box will no longer slide and my feet are at risk. If that was common practice, can see how the short term inventory might have been erased.

Plan is to buy physical metals with higher dollar density, like platinum. Want a rhodium bar but can't find...

Think today was another Wyle Coyote day, longs off the cliff, looking down, but not yet falling. Disney dictates they will splat on the canyon floor with great sound effects on the way down.

Expect several more banks to splat on the side of the mountain in Wyle Coyote and Road Runner style. Road runner will paint a tunnel on the wall and go thru; and Wyle Coyote will splat on the painting. This is alternative speak for the Fed fallacy and the Market.

"Everything you ever wanted to know about market action, has been depicted in Disney cartoons."

Waiting for the next "Ice Age" movie where Dow chart scratchings are discovered on the reminants of Wall Street ruins of 2010. Along with all the global warming chat. hehe

Great day for my longs: energy and PM juniors.
Awful day again for my options account. Haven't yet lost the Bear faith; all news today was ultra bear. Investors whistled past the graveyard. Yup, housing is collapsing at an exponential rate... but...

Bought some TMY a few days ago and forgot to mention. Transmeridian. Chart pattern seemed due. Have traded many times. Risky, but it can add a pop.

Did buy some FRG today, too bad late, but the reversal looked strong. They didn't mention uranium but some of the properties yield uranium.
As a techie, U is the place to be long term.

Pretty well loaded on the PM juniors, need more energy juniors. Plan to own individual juniors for take-out potential, but for big swings will use ETFs like GDX.

Even if there is a major stock reversal, which I still expect, idea is the juniors will not be set back much more.

That's all my thoughts on the end of today's trading.

I will be looking to buy some PBW tomorrow.

Best of luck!!

Au rator.

Booked my room for the 2008 LV Money show. Travel is really getting expensive.

Hope to have a meeting somewhere for those of us attending to place name and face, and have a great time. No major event left unattended.
Not the Bellagio buffet, it nearly killed me.

Airlines next, always an adventure in the Matrix.

Last time I flew out of LV, we were caught in a serious thunderstorm (in the middle of the desert). Then missed connections and got stuck in Chicago for some great pizza. Play the hand dealt with the genius you were given.

If financials have bottomed, why is the FDIC effectively doubling the number of staff it has that deals with bank failures?

http://tinyurl.com/2oln7z

I think I'm going to ride my SKF back into the green one last time then get out of the ultrashorts. All this couterparty talk has me spooked. I don't want to wake up one day and find out that my ultra short stocks are worthless because some damn bank blew up overnight. I'll just stick to old fashioned shorting from here on out.

Zenob:

"I don't want to wake up one day and find out that my ultra short stocks are worthless because some damn bank blew up overnight."

Congrats!. My nomination for declaritive which best summarizes the trading environs for the past (and next?) 6 months!

As the Guiness Brothers say, "Brilliant."

In middle of reading Elder's "Come Into My Trading Room." Like EMA envelopes set at two standard deviations, and can't find it in stockcharts. Can anyone recommend a site, preferably free, that has EMA envelopes and will automatically calculate the coefficient for two standard deviations of the underlying security? Thanks in advance.

SteveC,

Actually, EMA envelopes ARE available on Stockcharts...they're called Keltner Channels (which are simply standard deviation channels based off the 20-period EMA
Conversely, Bollinger Bands are standard deviation channels based off the 20-period SMA)

On Stockcharts... for both Bollinger Bands and Keltner Channels... you can adjust the SMA/EMA length (default is 20), and standard deviation (default is 2.0)

Hi,

meeting with DB etf sales person changed to Monday the 31st after lunch.

I have taken not of all questions and will report back at that time.

Came across an interesting story abour Edward Jones today......

http://edhoodfraud.homestead.com/

Can you say....... Failure to Supervise