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No6's Financial Markets Thread

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Strange market today. Slovakia votes against funding the ESFS, its Government effectively falls as it was linked to a no confidence vote. In the US, the Republicans, not surprisingly, block Obama's jobs package, while the US Senate has a go at China voting through its Bill on the value of the Yuan. Markets would normally react badly to such moves, but so far are up. This either signifies a degree of strength in the current upward move or a calm before another move down. FTSE is around the 5400 resistance and needs a major push to get through it at this stage in the upward move.

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From Joe Duarte free newsletter.

 

This Rally Has Some Staying Power For Now

 

The stock market's rally continues to solidify, and new data suggests that hedge fund selling in the August to early October period may have been the key development which set up what may turn out to be an important buying opportunity.

 

As we learned via Michael Lewis' expose' of the subprime mortgage crisis, it's not always what we know, but what we don't know that bites us. And hedge funds, which still operate in a murky world of leverage and credit default swaps, remain a key cog in the fortunes of all markets. The key to the whole dynamic may be the credit default swap, a sophisticated hybrid financial instrument that is half an insurance policy, and half a highly leveraged option. The buyer of a swap, basically rents the probability of something that may happen from the seller. In the case of stocks, the bet involves a rise or a fall of prices.

 

Say, for example, that a hedge fund believes that the stock market is going to fall. It can buy a credit default swap that would pay a figure if the market falls a certain amount. If the bet is for a billion dollars, then the premium, or the rent, may be something like a few million dollars per year to keep open. If they are wrong on the bet, and they want to get out, they have to answer the margin call, or the seller's call for more money. It's when the bet goes wrong that the owner of the swap has to find money, either to keep the bet open, or to get out. That's when markets crash and burn, as hedge funds often sell liquid assets, such as stocks and bonds in order to raise money to pay off a bet, such as a credit default swap.

 

Over the last few months, there have been plenty of reports about John Paulson's hedge funds taking huge losses. Mr. Paulson was a little known hedge fund manager until the subprime mortgage crisis hit. He had the presence of mind to buy large numbers of credit default swaps that bet against subprime mortgages. And the bet paid off handsomely. Mr. Paulson became an instant star in the hedge fund world. But, Mr. Paulson had enjoyed very little success, according to multiple reports, prior to his subprime mortgage crisis master strike, a fact that suggests that his success may have been a once in a lifetime hit.

 

Now, Mr. Paulson is facing what Reuters is describing as a loss of "as much as a quarter of its assets" in "a "worst-case" scenario if all people who are eligible cash out by the end of the year." According to Reuters, one of Mr. Paulson's funds is down as much as 47% for the year while many of his funds "have lost big this year."

 

The time line for the selling holds up. Reuters reports that Mr. Paulson's team had an investor phone call on Tuesday in which they notified clients of the current situation. But, there have been other warnings. According to Reuters: "in the days leading up to the investor call, some on Paulson's team had been telling brokers and others on Wall Street that at least 20 percent of the $30 billion in assets the fund manages could be redeemed. The deadline to get out of the biggest funds — the Advantage funds — is coming up on October 31."

 

The key to this story is that at least one big hedge fund family has been in trouble this year. If one is in trouble, then several are likely to be in trouble. And that means a lot of margin calls as the bets go against them. And that usually means selling of liquid assets.

 

What it also means is that as stocks sold off on October 3 and 4, some hedge fund(s) may have hit the panic button, setting up the rally that we are now, in our opinion, in the very early stages of.

 

The Markets

 

We like this market, a lot. The rally is displaying a good number of very positive characteristics. For one, no one believes in it. No matter how many resistance levels prices slice through, the negativity remains stout, and in some cases is rising. That's bullish. And for another, volume is only starting to pick up slowly, which means that people are still scared. At some point, though, just as they dumped stocks at the bottom, they will buy stocks in a hurry as the rally gets away from them.

 

The S & P 500 (SPX) closed above its 50-day moving average for the second day in a row on Tuesday. And if this morning's expected rally holds up, and we get a good close, we could see a bunch of money coming into the markets in the last hour of trading.

 

The market's breadth is also improving. The Nasdaq Advance Decline line (NAAD) is one good day, maybe today, away from breaking out of its lower low, lower high pattern. A breakthrough here would be very bullish. Nasdaq's A-D line is not distorted by large numbers of ETFs, bond funds, preferred stocks, and convertibles, as is the NYSE A-D line. That means that we get a better, clearer picture of the action in stocks from NAAD.

 

Best of all, few are bullish. According to Mark Hulbert: "Contrarian analysis is just as bullish today as it was one week ago, despite the impressive rally since then. In fact, some sentiment indexes are painting an even more bullish picture today than then." How bearish are people? According to Hulbert: "the typical Nasdaq market timer is currently recommending that his clients allocate nearly half of their equity portfolios to going short." That's a lot of pent up buying power waiting to come into the market.

 

Conclusion

 

As we analyze the current rally, in a retrospective fashion, we can see how the panic bottom formed in October as hedge funds threw in the towel to meet margin calls. Now, we are watching a good deal of skepticism with the rally. All of this is very bullish.

 

We like this market, and we think it could go higher. There is always the possibility that we are wrong. We're not perfect. But, if you follow the trend, you usually make money. And the trend is slowly but surely, turning up.

 

http://www.joe-duarte.com/free/market_summary_weekday.asp

 

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The founders of Full Tilt Poker, PokerStars and Absolute Poker could face up to 20 years in jail if found guilty of breaching US anti-gambling and money laundering laws.

 

The US Department of Justice (DoJ) seized the companies’ bank accounts and took control of their US websites, which now display an FBI warning about the illegality of online gambling.

 

It is against the law for US citizens to gamble online, but many Americans have continued to bet via foreign websites operating illegally.

 

Analysts said the DoJ probe was “great news” for British gambling companies that have not sought to circumvent US laws because authorities are likely to “reward” them if and when regulated online gambling is introduced in the US."

 

http://www.telegraph...-crackdown.html

 

UK companies like 888.com and B.Dev, have gone up in price on the back of this, but don't forget the likes of William Hill and Ladbrokes as well. William Hill has one of the biggest poker sites in the UK and has recently been on a spending spree buying US companies to build a presence over there. If online gambling is legalised in the US, I would expect a big re-rating of UK companies in this field, especially those on current low P/E's like WH and Ladbrokes who have largely been forgotten in the market bounce of the last 2-3 years.

 

As an aside, you do have to laugh at the US and its high and mighty attitude to these gambling sites, especially after the fraud that Wall Street and its banker friends got away with. :lol:

 

Nice calls on William Hill earlier in this thread No6. Looks like it has recently taken off.

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Markets beginning to look quite strong again despite the type of negative news that a month or so ago would have sent them down. This for me is a strength, a sign that baring something major actually happening, a default, the markets have priced in a level of doom and gloom that they do not want to go below. As I've mentioned before, when it suits them to use the news to sell off, profit taking, that is what they will do, but this still seems to be happening within trading ranges that haven't been breached to the downside. The weekly and monthly charts are now looking more positive towards the upside and I may post some later. Bears may have had their honey for now.

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Hefty rise in UK price inflation today. BoE on alert to not do anything.

 

The rate of Consumer Prices Index (CPI) inflation in the UK matched its record high in September, rising to 5.2% from 4.5% the month before.

 

An increase in energy costs was behind a large proportion of the rise.

 

The 5.2% rate is the highest CPI measure since September 2008, and it has never been higher since the CPI measure was introduced in 1997.

 

The Retail Prices Index (RPI) - which includes mortgage interest payments - rose to 5.6% from 5.2%.

 

The latest RPI measure is the highest annual rate since June 1991.

 

The Office for National Statistics, which released the data, said in a statement: "By far the largest upward pressure to the change in CPI... came from increases in gas and electricity charges.

 

"There were also large upward pressures from air transport and communication services."

 

Bills for gas and electricity have risen 9.9% in the past month, and are up 18.3% on the year.

 

Transport has risen 12.8% on the year, and food was 6% higher than 12 months ago.

 

http://www.bbc.co.uk/news/business-15344297

 

But, as we heard on the Today programme on Tuesday morning (0750), there are plenty of critics who would see the 5.2% inflation rate as further damning evidence that the Bank of England has run away from its job.

 

In my recent interview with Governor Mervyn King, he insisted that "allowing" this inflation to occur had been the lesser of two evils: had the bank sought to avoid it, the economy would have slipped back into recession and everyone - including pensioners and savers - would have been worse off.

 

In the Bank's view of the world, the single greatest threat for a highly indebted economy, coming out of a major financial crisis, is deflation - falling prices - which can push you into a downward spiral, like Japan.

 

http://www.bbc.co.uk/news/business-15351667

 

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Well is it a FTSE low of 4800 for 2011 ?

 

I didnt expect the past weeks falls to be so large and by yesterday started to throw a few Hail Mary passes to preserve cash by buying out of the money options. Given the S&P rally I would be disappointed if a couple of them are not 10 baggers at tomorrows opening.

 

Hoping for a decent rally from here to take of the leverage.

Well the strong rally took much, much longer to arrive than I thought but at last its here and those out of the money options are now showing very handsome returns.

With strong Q3 results from many companies and low PE valuations I expect markets to go higher but I started selling options today and taking off the leverage in case im wrong.

 

You on holiday no.6 ?

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Well the strong rally took much, much longer to arrive than I thought but at last its here and those out of the money options are now showing very handsome returns.

With strong Q3 results from many companies and low PE valuations I expect markets to go higher but I started selling options today and taking off the leverage in case im wrong.

 

You on holiday no.6 ?

 

Not on holiday, but I seem to be coming here less and less these days. My own interests are mainly UK market based and there isn't much discussion around here for that, so I have less reason to post as it is easy to feel that you are talking to yourself!

 

Your call above was a pretty good one considering yet another Greece spanner in the works.

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it is easy to feel that you are talking to yourself!

 

 

Can assure you, that is not the case, but sometimes when there is nothing useful to say, some say :)

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Not on holiday, but I seem to be coming here less and less these days. My own interests are mainly UK market based and there isn't much discussion around here for that, so I have less reason to post as it is easy to feel that you are talking to yourself!

 

Your call above was a pretty good one considering yet another Greece spanner in the works.

 

Recently I’ve been trying to avoid buying individual stocks to free up more time. So rather than reading company reports etc Im just buying leveraged indices and holding cash. Keeping it simple and just reducing the leverage when the market rises and increasing leverage as it falls. Much easier to buy on drops if initially hold 50% 2xIndex and 50%cash rather than 100% Index.

 

We are almost at the end of the earning season now and record results. Some interesting numbers presented here:

 

http://seekingalpha.com/article/305901-s-p-500-earnings-on-pace-for-record

http://www.cnbc.com/id/45195111

 

To me its still looking like a good time to buy. Earnings are now back at the record highs of 2007 and unlike back then the major risks seem to be in plain sight i.e. sovereign debt. If the debt issue is resolved, and surely Germany will resolve it if the situation gets bad enough. Interesting talk today of “stability bonds” i.e. nicer sounding version of Eurobonds. No difference between them but maybe enough political smokescreen for Germany to accept if it gets bad enough.

 

If a way can be found to resolve the EU debt then a jump up to 1350 looks possible. If not and there is a drop I would use cash to leverage up again. Germany will give in once it gets bad enough and let the ECB print euros or issue Eurobonds, sorry stability bonds!

 

So I have less reason to post as it is easy to feel that you are talking to yourself!

 

Maybe not many people are talking back (writing) but I suspect many more are listening (reading) to your posts. To be honest its one of the few things I read on here these days. Its either too much doom and gloom, or aliens, or conspiracies, or tea leaf reading for my liking.

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Maybe not many people are talking back (writing) but I suspect many more are listening (reading) to your posts. To be honest its one of the few things I read on here these days. Its either too much doom and gloom, or aliens, or conspiracies, or tea leaf reading for my liking.

 

 

Same here.

 

at times No6 your blog is my secret weapon for handling the markets!

 

Ps. On the subject of UK stocks, anyone else like the look of WPP as a longer term bet ? I know he is not Steve Jobs but he does have a long term record and is one of the very few around as far as the UK Market is concerned in that respect.

 

http://en.wikipedia.org/wiki/Martin_Sorrell

 

http://www.wpp.com/annualreports/2010/what-we-think/by-sir-martin-sorrell.html

Over a quarter of a century, WPP’s strength has been our ability to identify trends and capitalise on them for our clients and ourselves. It’s how we began with two people in a room all those years ago. It is how we have weathered the recent crisis. And it is how we will position WPP for sustained growth in the years ahead – albeit with nearly 100,000 people directly with us, access to over 146,000 and rather more rooms than we started with.

 

It is essential that we identify geographic, functional and technological changes and adapt our business to make the most of them. For that reason, we expect the balance of our work to move from the ‘L’ shape of Western Europe and other established, slower-growing economies towards the ‘V’ of dynamic new markets. They include China with its possibly 1.5 billion and rising population, along with India and its even faster-growing population, and the other BRICs nations, Brazil and Russia – not to mention the Next 11.

 

The process is unstoppable. Cynics can no longer argue that the inevitable power shift from West to East or South to Latin America or South-East to Africa and the Middle East is just about cheap labour and low-cost manufacturing. Indeed, assuming that China and India will remain mere makers of cheap generic goods could prove life-threatening. Both countries are cultivating their own global brands and service industries, and they will be as good as anything the West can muster. After all, we used to say the same thing about Japan or Hong Kong.

 

Fortunately, WPP has leadership or near-leadership positions in all these countries (other than Iran, one of the Next 11), a position we will maintain. In India, for instance, we have a substantial market-leading share and in Greater China a market-leading share, making the latter WPP’s fourth-largest market already after the US, the UK and Germany. That can only grow as the global financial crisis fades.

 

 

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Another to look at for the longer term fund might be the FTSE 250.

 

Apparently been through the wars a bit, but the companies left are good ones, yet the index has been sluggish.

 

I haven’t really looked at the 250 before, but vaguely remember it did very well between 2003 and 2007 and was always being mentioned then.

 

Haven’t really heard much since but I'd be interested if anyone has looked at these in more detail?

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Maybe not many people are talking back (writing) but I suspect many more are listening (reading) to your posts. To be honest its one of the few things I read on here these days. Its either too much doom and gloom, or aliens, or conspiracies, or tea leaf reading for my liking.

 

ABSOLUTELY! You missed out the i'm right, you're wrong spats.

 

Moving on, noticed one fallen "Angel" trying to turn it's business around and move with the times.

 

Yell Group revenue decreased 12.2% to £787.2m for the six months to end of September 2011.

 

Whilst digital services revenues grew 149.1% to £63.6m digital directories (Internet Yellow Pages) revenue fell 9.7% to £172.7m and print and other directory (enquiry services) revenues fell 19.3% to £550.9m

 

EBITDA of £231.4m was down £26.5m whilst profit after tax of £47.9m was up £26.1m.

 

Live customer websites increased from 124,000 to 355,000 but digital directories visitors declined 15.1% to 42.9m and mobile directories visitors were 3.2m.

 

 

http://www.stockmarketwire.com/article/4254061/Yell-results-show-decline-in-directories-group-revenue-down-12pct.html

 

Still seem to have cash issues, but one i'm going to keep an eye on with the shares badly beat up.

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Likewise in the main, but I suppose my post did broaden it further. Immediately I think of CEY and how it was shorted/ marked down on Egypt's problems. Not really much to do with any change in the companies operations was there? All bar the much exaggerated sit in by a few non core operatives I believe.

 

Was still an opportunity for some though.

 

Almost Deja vu. If ever there was a short last week, this had to be it. Not only burdened by the unfortunate death of their CEO, the country woes kicked back in. Even expected it to run down this morning.

 

Sure enough, shares closed down 10.6 at 88.4p a good 10%+ drop, what a miss :(

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http://www.stockmarketwire.com/article/4254061/Yell-results-show-decline-in-directories-group-revenue-down-12pct.html

 

Still seem to have cash issues, but one i'm going to keep an eye on with the shares badly beat up.

 

Meanwhile tentative rises at Yell. Jumped a bit late myself last week at 4.5 on bounce day, next day they went above 6p and some muppet messed up his trailing stop :rolleyes:

 

Still struggling up in a poor market is encouragement for those long.

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Whole new meaning to don't just book it, thomas cook it! :o

 

LONDON (SHARECAST) - Shares in travel firm Thomas Cook have continued their downward spiral after the firm said it was in talks with its banks about borrowing more money.

 

After an hour of trading the company's share price was down almost 70%.

 

Thomas Cook said it was going back to its banks because of a "deterioration of trading in some areas of the business in the current quarter".

 

"The company is in discussions with its principal lending banks with regards to its facilities during the seasonal low period of cash in the business," Thomas Cook said.

 

 

 

http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=5153647

 

What a short play this has been on an obvious difficult trading year. Also makes a mockery of certain anal yst forecasts, some not so long ago predicting 100p(nice round number I guess). :o

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Whole new meaning to don't just book it, thomas cook it! :o

 

 

 

http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=5153647

 

What a short play this has been on an obvious difficult trading year. Also makes a mockery of certain anal yst forecasts, some not so long ago predicting 100p(nice round number I guess). :o

 

Another WOW moment, anyone brave enough to have bought T.C near the lows, could have sold around 22p yesterday.

 

Some dead cat bounce, over 100% gains in less than a week!!

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Interesting week down two pubs.

 

One with a new manager serves a fresh profit amid a takeover play that will not go away.

 

Pub and restaurant group Mitchells & Butlers has returned to profit for 2011 despite a challenging year with board changes and a failed takeover attempt.

 

The company, which owns brands including Harvester, All Bar One, Nicholson's and O'Neill's, made a pre-tax profit of £132m, compared to a pre-tax loss of £127m the previous year.

 

http://www.caterersearch.com/Articles/22/11/2011/341176/Mitchells-amp-Butlers-returns-to-profit-in-2011.htm

 

The other is raking some dosh, but looks a bit frothy.

 

Leased and tenanted pub giant Enterprise Inns has seen its pre-tax profits slip 10% to £157m for the year to 30 September 2011.

 

The decline came despite average net income per pub rising 1% to £64,200 for the full year, up from £63,600 last year.

 

http://www.caterersearch.com/Articles/22/11/2011/341177/Enterprise-Inns39-profits-slip.htm

 

Be interesting how these fare over the festive period and going into a difficult year. Which one might be the best short?

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Another WOW moment, anyone brave enough to have bought T.C near the lows, could have sold around 22p yesterday.

 

Some dead cat bounce, over 100% gains in less than a week!!

 

It would be good to know in advance which companies the banks are going to bail out :lol: . Heard a senior TC person on the LBC travel show while driving around Sun night, talking about how the banks have agreed to cough up 200m. Hadnt realised that TC had taken over Co-Op travel so some branch reductions to be expected but probably not until after the Jan-Feb booking season!

 

I remember a similar thing with Taylor Wimpey or one of the housebuilders where the market had priced in oblivion but they got the bankers on side.

 

On the other hand.... poor old Woolies did not get much banker love !

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It would be good to know in advance which companies the banks are going to bail out :lol: .

Would be even better if you knew how far the share price would spike following :lol:

 

Took a traders gain on YELL which spiked on lenders deal to I think intraday on the bid of about 6.8(might be wrong), held on a bit too long and gave some back short term, but cannot see much more happening this side of Christmas for it, so banked the profit. Still a profit, is a profit :rolleyes:

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Would be even better if you knew how far the share price would spike following :lol:

 

Took a traders gain on YELL which spiked on lenders deal to I think intraday on the bid of about 6.8(might be wrong), held on a bit too long and gave some back short term, but cannot see much more happening this side of Christmas for it, so banked the profit. Still a profit, is a profit :rolleyes:

 

 

Nice one!

 

"Would be even better if you knew how far the share price would spike following" Yeah... I was originally going to say that, but thought it sounded too obvious (even from me)! :lol: Sounds best coming from those who have earned the right to say it.

 

Happy Crimbo all

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This seems to have died off in here. Shame, was one of my favourites.

 

Yeah shame!

 

Was good to have general market chat without refernce to gold(or silver), puts or options here...afraid = unfashionable.

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Yeah shame!

 

Was good to have general market chat without refernce to gold(or silver), puts or options here...afraid = unfashionable.

 

 

I remember typing out a reply to your post / or the one above - a while back. Heck knows what happened to it but yeah shame to see it die out. Hope Bubbs new thread has a bit more life...

 

http://www.greenenergyinvestors.com/index.php?showtopic=16007&st=0&gopid=240856&

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For those interested in the UK market, dividend payers, etc, you might find my blog of interest.

 

http://sevenpillarstrading.blogspot.co.uk/'>http://sevenpillarstrading.blogspot.co.uk/

 

Sample.

 

Why dividends should count

 

While some are arguing that further stock market falls or a bear market lies ahead, a strange thing has been happening on the FTSE in that dividend payments for many companies have been on the rise the last 3-4 years and in a low IR, especially for savings, relatively high inflationary environment, ultimately good solid companies with a reasonable history of rising dividends should be in demand. If the market falls further, the dividend yield will rise.

 

For anyone who is a long term buy and hold investor, the ideal scenario is one where over time you get both capital appreciation in a rising share price and a rising dividend payment. The earlier in terms of their growth that you catch such companies the better. Robbie Burns, AKA The Naked Trader, often finds future big dividend payers in the smaller company sector, but often the FTSE350 will throw up anomalies in the potential dividend payment of well established stocks especially during times of crisis.

 

http://sevenpillarstrading.blogspot.co.uk/

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