Archives for June 2012

June 2012 - Page 16 of 16 - Money Morning - Only the News You Can Profit From

Disastrous U.S. Jobs Report Pummels the Market

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Let's just say it: The May U.S. jobs report released today (Friday) was abysmal.

American businesses in May added the smallest number of workers in a year, only 69,000 – less than half of the median analysts' estimate of 150,000.

The unemployment rate unexpectedly ticked up from 8.1% to 8.2% as job seekers returned to the workforce, the Labor Department report revealed.

In addition, revisions from previous months showed the economy gained fewer jobs in March and April than originally believed. March's employment numbers were reduced by 11,000 jobs to total 143,000, while April's plunged by 38,000 to total a lousy 77,000.

The disappointing numbers cast doubt on the strength of the U.S. economic recovery, and also overshadow any evidence that the labor market is improving.

The news sent the Dow Jones tumbling some 160 points on the open and more than 220 points by noon, with the other indexes following. While many traders were anxious to see May end, June hasn't started off in the right direction.

"Yuck, this is really not good," Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust, bluntly told Bloomberg News. "We're at a very precarious point right now as far as investors' psyche is concerned."

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Facebook Stock Options: Bears Come out to Play

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It's been an interesting ride so far since the Facebook stock options left the starting gate Tuesday.

Expected to hit the 400,000 contract mark on their first trading day, the options closed with a total volume of 369,478 contracts, according to The Options Clearing Corp (OCC). Only Apple Inc.'s (Nasdaq: AAPL) options had more trading volume than Facebook on Tuesday.

Unfortunately, the underlying Facebook (Nasdaq: FB) stock price wasn't as charming as it dropped under $29 a share for the first time Thursday. That's more than 23% below its IPO price of $38 on May 18.

The options market has highlighted investors' lack of faith in the Facebook stock price.

Put options, usually recognized as a bearish bet, give a holder the right to sell shares at a specific price by a certain date. Call options, on the other hand, are usually considered a bullish bet and give the holder the right to buy shares at a specific price.

In its first three days of trading, put volume has continued to outdo call volume. It appears that everyone is down on this stock.

Until Facebook stock stops falling, most investors remain too wary to buy.

"Short-term we are still cautious but there should be reasons for optimism later this year and next," Pivotal Research analyst Brian Wiesner told Reuters.

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Dumb and Dumber: Congress, the Language, and the Facebook Fiasco

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You're not imagining things. Congress is dumb and getting dumber.

According to the Sunlight Foundation, the median grade level for Congressional proceedings and speeches has dropped nearly a full grade level from eleventh to tenth grade.

The result of studying the Congressional Record for the past seven years, the Foundation's data also suggests that both conservatives and new congressmen are responsible for dumbing the entire legislative body down.

But I don't know if I buy that when you consider that Republicans own both ends of the scale.

For example, Rep. Rick Mulvaney , R-SC, speaks at an average grade level of 7.9 while Rep. Dan Lungren, R-CA, uses speech consistent with a college senior.

What I do find very interesting is that the majority of "sophisticated" speakers are only sophisticated when using prepared notes.

The Sunlight data tells us when the majority of our leaders have to speak extemporaneously -a five dollar word in itself- they appear just as "dumb" as the rest of us.

Maybe this explains why our leaders say so much yet actually communicate so very little.

Take the last 67 p residential addresses for instance. They were given at an average grade level of 10.7.

Meanwhile, all of President Obama's State of the Union addresses have tallied at a level you'd expect of an eighth grader, according to the University of Minnesota's Smart Politics.

Dumbing Down the Message

I actually think there is something else at work here. It's sound bites.

Our leaders are now trained to talk in them because they know that's what gets them re-elected and what sells in the nightly news. As a result, most politicians can't put together a string of intelligent sentences even if they wanted to.

Again, is this simply a matter of language? …. Or does it hide a bigger underlying issue?

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Natural Gas: Following T. Boone Pickens into the Energy Patch

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An iconic Southwestern energy patch player, T. Boone Pickens has built a legacy over the decades that proves the old Texas saying: "It's not the size of the dog in the fight, but the size of the fight in the dog."

In the wild days of the 1980s, made famous by a generation of traders who emulated the likes of Gordon Gekko, few could ever match the Pickens eye for the big deal.

Never eat anything bigger than your head?…. Pickens never heard that one.

As the head of Mesa Energy, his first deal was to purchase the Hugoton Production Company – made notable by the fact the company was 30 times the size of his own.

His thirst for Goliaths continued for decades to come. He once even went after Gulf Oil, which is now Exxon Mobil.

The point is Pickens has never shied away from risk when he saw reward. And for all his bold achievements there is always less "crazy" there than there seems to be.

And if you're looking for a guy who knows:

  • How Wall Street traders and Texas wildcatters think.
  • Who can read a geological map.
  • Who can manage a hedge fund.
  • And who can make money in a volatile industry… Pickens is your guy.

He's the Warren Buffett of the energy patch.

That's why there is more there than meets the eye in his unique venture into the natural gas market with Clean Energy Fuels Corp. (Nasdaq: CLNE). Pickens is its founder and largest individual shareholder.

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Inside JPMorgan's (NYSE:JPM) Magical Fun Palace

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The financial system wasn't fixed after 2008, and it won't be fixed anytime soon.

The unexpected $2 billion – or is it $5 billion? — loss incurred by JPMorgan Chase (NYSE:JPM) "whale" trader Bruno Iksil shows only too clearly the flaws in Dodd-Frank and other regulatory activity.

Big banks are still taking risks they simply don't understand. Worse, there's no reason to believe the regulators understand them, either.

While the banks do employ "quant" mathematicians to analyze risk, the problem is the quants are also paid to help maximize the profits from the banks' trading desks.

Not only is this a bit of a conflict, but they are working off a market model that has failed repeatedly in the past.

It's a dangerous mix for investors and taxpayers alike.

The Failed Trade at JPMorgan (NYSE:JPM)

JPM's trade that failed had been to build up a major bullish position on corporate debt defaults — in other words, betting there wouldn't be many of them.

In a sensible financial system JPM would do this simply by going out and lending lots of money to corporations, or by buying their bonds.

However, according to The Wall Street Journal, in the magical fun palace of today's trading room, JPM achieved this instead by buying an obscure credit derivatives index known as CDX.NA.IG.9.

The key is that this is a "mature" index. Conceived of 10 years ago, the index JPM bought only had 5 years of life remaining.

In other words, not only did JPM use this foolish roundabout as a way to take a position on credit, but it did so through an old index, which could be expected to be less liquid than a newer index that attracted the most trading volume.

Then sharks began to circle.

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