Winterpool - 18 December 2008 09:55 AM

Ugh, broader market retraction is sapping AAPL’s upward momentum.

After reading all those ‘commercial property is doomed’ pieces last night (and real-estate investors’ entanglement with Madoff), why didn’t I buy SRS?  Ha!

From what I’ve read, it looks like Paulson looks to release TARP funds to GM in time for Christmas, and he himself has effectively become the ‘car czar’ in the ongoing negotiations.  Presuming there will be a pop when this is announced (unless we’re sick of hearing about Detroit?), I’m looking for an entry point in shares likely to rebound strongly on the news.  No idea what those might be though.    Perhaps Eric has some insight here?

My view is that oil will hit $35 intraday, reverse, and then head toward $50 and $60 and then stay there. This makes USO a good play but keep in mind that ETFs tend to self-dilute and so that over time the equivalent price or retest of a former high will in point of fact be a little lower. SRS has been in a hugh decline on momentum. It overshot its value on the upper end and like APPL had all kinds of people leveraging further in the higher it went. Then SRS blew up and the margin call selling began to take place faster and faster. TanToday, crazy as he is, having been a commercial property manager convinced me that SRS had a good story when it dipped to $100. But the unwinding of margin calls as well as people shorting the SRS (people shorting the SRS—which itself is an ultrashort—meaning that SRS bears are long on commercial property which is ridiculous piled in purely from the perspective of momentum). What is taking place now is that people who shorted SRS are covering and flipping long. SRS wise, as a position trade I’m looking for a January exit point. There is likely a lot more value in the upper reaches of SRS but I’m in on value and I will exit on value.

Meanwhile I’ve been forced to peel off F the longer .gov drags on doing nothing. I’m up huge in F but to lock in profits in case the government somehow messes this up beyond my most horror filled imagination, I peeled back a percent of my position nearly every other day until I reached a point where F could go to zero and I’d still have profit.

So unlike with SKF (which acts like the VIX, IMO) it seems that the SRS can rise even with the broader market going up ?

Or is this just part of the value play on it that’s happening right now? Just asking in case we can use it in any way to help us with monitoring aapl. SKF was very useful in doing so the past few weeks.

kiwitrader - 18 December 2008 10:45 AM

So unlike with SKF (which acts like the VIX, IMO) it seems that the SRS can rise even with the broader market going up ?

Or is this just part of the value play on it that’s happening right now? Just asking in case we can use it in any way to help us with monitoring aapl. SKF was very useful in doing so the past few weeks.

No. The SRS is levered short against the Dow Jones Real Estate Index. The worse real estate goes, the higher the SRS should go (unless margin calls blow it up because it overshot its true value, corrected which then caused a host of margin selling to overshot the true value on the low side). Yesterday the SRS was valued as though the real estate market has never been better. That’s ridiculous and especially so if the NYC real estate market continues to erode and decline.

The thesis is that the market has been grinding sideways because it expects a recovery to come but we are continually hit with worse and worse news. This was the same situation at the end of ‘73. The market took a huge hit in ‘73 and then ground sideways because it thought a recovery would come in ‘74. But mounting layoffs continued to slow the market which killed a month long rally in ‘74 and began a long, painful decline. The following is an overlay of our S&P with the S&P from ‘73-74.

At some point I expect a rally will come that will catch everybody up in. It’ll be a rally where all kinds of people are singing songs of better days to come and then, bamb, a slow decline will come as we march toward 9% unemployment (and 12% unemployment if .gov fails to do some government work and bail out the autos).

Effectively SRS is a hedge to the downside that gathers together the bad news of unemployment, slowing retail, the continuing credit crunch and lowering real estate values.

If the uptick rule is reinstated, I will see that as a headwind to SRS because the banks aren’t lending money because their stocks are continually being pushed down by shorts (when C hit its low the other day over 65% of all the shores traded where short—that couldn’t happen with any kind of uptick rule in place). Because lower bank market caps require the banks to have more cash on hand in order to avoid ratings down-grades, the net effect is that there is less lending and a continuation of the credit crunch. The credit crunch then effectively, slowly, and persuasively causes property prices to lower because everybody cannot wait to sell their real estate.

Moreover, if stimulus plan two is not enough (and it won’t be timely enough anyway) then Bernanke will be forced to begin raising interest rates. Bernanke knows this and that’s why he has raced to zero because in the great depression the FED had to begin raising rates but they began at 5%. Eventually high rates killed any likelihood for growth and the US didn’t recover until WWII production caused our economy to recover. WWII isn’t an option for us unless we follow Rome. As such Bernanke has lowered rates to zero to try and get ahead of the coming interest rate hikes he sees as necessary in the future.

All to say, I’ve much more to say on this subject of what forces I see at work on the macro level and how I see those forces effecting the market cycle.

Thanks Eric! I get SRS, but was just floating the question out there if it was possible for commercial real estate to decouple from a nearterm “rally” (mild one) in the broader market. SKF, since it shorts the financials could not in any way do this, as we’ve seen. That’s why I keep referring to it as the other VIX.

So, I’ll conclude “no, of course not you cockeyeyed optimist!” and that any positive action in SRS shows us real estate shorts reloading their guns for the next broader market battle.

Eric Landstrom - 18 December 2008 11:14 AM

... Moreover, if stimulus plan two is not enough (and it won’t be timely enough anyway) then Bernanke will be forced to begin raising interest rates. Bernanke knows this and that’s why he has raced to zero because in the great depression the FED had to begin raising rates but they began at 5%. Eventually high rates killed any likelihood for growth and the US didn’t recover until WWII production caused our economy to recover. WWII isn’t an option for us unless we follow Rome. As such Bernanke has lowered rates to zero to try and get ahead of the coming interest rate hikes he sees as necessary in the future ...

Pushing rate to zero is clearly a positioning to raise rate later.  However, I don’t understand why there is a need to raise interest rate during Great Depression and if stimulus plan is not enough.  Please elaborate.  Historically, market rallies when interest rate is rising. Actually, is rising market causes interest rate to rise, Fed rate merely follows the market.

Mace - 18 December 2008 12:17 PM

Eric Landstrom - 18 December 2008 11:14 AM

... Moreover, if stimulus plan two is not enough (and it won’t be timely enough anyway) then Bernanke will be forced to begin raising interest rates. Bernanke knows this and that’s why he has raced to zero because in the great depression the FED had to begin raising rates but they began at 5%. Eventually high rates killed any likelihood for growth and the US didn’t recover until WWII production caused our economy to recover. WWII isn’t an option for us unless we follow Rome. As such Bernanke has lowered rates to zero to try and get ahead of the coming interest rate hikes he sees as necessary in the future ...

Pushing rate to zero is clearly a positioning to raise rate later.  However, I don’t understand why there is a need to raise interest rate during Great Depression and if stimulus plan is not enough.  Please elaborate.  Historically, market rallies when interest rate is rising. Actually, is rising market causes interest rate to rise, Fed rate merely follows the market.

Here is some color. When zero isn’t enough.

Alternate link to same story.

Marketwatch seems to be blowing up. Here is the same story at Fidelity.

For the record:

I’m still in SRS and still in vulture mode over USO which is trading at $32.50 right now (its lowest ever in the ever-moving target of ETF valuations).

I have to say I am amazed by the strength of GS today in the face of their horrible earnings and the overall deteriorating market. Simply amazing!

Yes, I’m amazed at GS too. Perhaps it is so severly oversold or still being covered to the point it just keeps going up. Or, perhaps it was the sight of a new SEC chairperson to come and the idea of the uptick rule re-enstatement being more deeply planted in the minds of the shorts. If it not for GS, SKF wold be packing a cool $20 today instaed of $5-6.

So, I forgot about orcl after the bell in addition to RIMM. This should be an interesting AH. S&P on track ATM to close above 885. Things would suck a little less if it does. 

kiwitrader - 18 December 2008 03:48 PM

Yes, I’m amazed at GS too. Perhaps it is so severly oversold or still being covered to the point it just keeps going up. Or, perhaps it was the sight of a new SEC chairperson to come and the idea of the uptick rule re-enstatement being more deeply planted in the minds of the shorts. If it not for GS, SKF wold be packing a cool $20 today instaed of $5-6.

So, I forgot about orcl after the bell in addition to RIMM. This should be an interesting AH. S&P on track ATM to close above 885. Things would suck a little less if it does. 

Are you peeling back some profits on GS? RIMM is trading as though bad news leaked.

So far we are getting a bounce from rimm. This is why we like when rimm makes their numbers.

Eric Landstrom - 18 December 2008 03:52 PM

GS? RIMM is trading as though bad news leaked.

+6.35% in AH?

RIMM is falling fast and hard and loosing almost all their AH gains.

and RIMM falls to ground in true APPL style.

Rimm’s Results

Research In Motion Limited (RIM) (NASDAQ: RIMM)(TSX: RIM), a world leader in the mobile communications market, today reported third quarter results for the three months ended November 29, 2008 (all figures in U.S. dollars and U.S. GAAP, except where noted). The third quarter results reported today by RIM are in line with the preliminary third quarter results reported by RIM on December 2, 2008.

Revenue for the third quarter of fiscal 2009 was $2.78 billion, up 7.9% from $2.58 billion in the previous quarter and up 66.3% from $1.67 billion in the same quarter of last year. The revenue breakdown for the quarter was approximately 81% for devices, 13% for service, 2% for software and 4% for other revenue. During the quarter, RIM shipped approximately 6.7 million devices.