Well that was easy!
Europe held our levels and, although we had a small sell-off at the open, by 9:49, with the Dow at 13,662, I said: "Gathering strength now, things could start looking good if we can stay positive on our watch list! Not sure what it will lead to tomorrow but I’m covering my index puts for now in case this builds into another big run. Commodities leading the way so I don’t love it but hopefully oil will be rejected at $90 and calm that sector down. Interesting TSO and VLO weak against the group. FWLT of all things, not moving."
Pending home sales came in 40% worse than expected (.6% vs 1%) but nothing was going to stop this market from ignoring the $10Bn UBS write-down and the fact that MBI was the latest lending institution to have to sell a quarter of the company at fire-sale prices to Warburg Pincus. If you ever need a good example of Jim Cramer in action, this is it – here's honest Jim in a special segment (produced by his company) scaring the straights out of MBIA just prior to his pals at Warburg swooping in to buy 1/4 of the company at a 55% discount to October's high PLUS warrants to buy more at $40! Best quote "Do I think that MBIA in a perfect world is worth zero – yes!"
I always find it interesting that the troubled company never offers warrants to their existing shareholders if they double down at the lower price – that should be a law, that current investors have the right to pari passu terms with new money. That would put a stop to a lot of systemic abuses as a massively dilutive event like this one wouldn't come at the expense of the poor saps who took MBI's word in August that "it has very little exposure to the subprime slime that has shaken up Wall Street." I'm not kidding, you HAVE to read this link!
I won't go over all the idiocy again, we discussed it in the weekly wrap-up and WM today was a shining example of how a bank with a $17Bn market cap can use the magic of leverage to lose $6Bn in just 12 months (so far!). On October 5th, WM had claimed the the $950M they set aside was adequate and CEO Killinger said, on earnings day (10/17) "I'm very pleased with how we've managed the company through this period of stress." They out and out LIED to us, not a little lie like my daughter telling me she doesn't know who left a lollipop on the couch, this sticky mess cost WM shareholders 50% of their equity since Killinger's 10/5 assurances.
My favorite quote of the day comes from Park Sehick, who manages $6Bn at Seoul's Hanwha Investment Trust Management Co, who said, after UBS lost $10Bn and WM lost $6Bn and cut dividends 75%: "Positive financial news is a good reminder that banks still give better dividend payments than other sectors." It's like these guys are operating in some parallel universe where the laws of finance don't really apply! In a related note, Phil's Stock World will be changing it's name to Phil's Stock Investment Trust World as those words seem to get people to throw Billions of dollars at you with little regard to your investing acumen…
"Oh I used to be disgusted, and now I try to be amused."
If you want to be amused we have (courtesy of Spin The O) a very funny British discussion of the subprime issue in two parts. Part One. Part Two. I really like it as it's a very intelligent discussion about how idiotic this whole thing is and I really and sitting out the main of this rally as I think there's a lot more money to be made on the short side of this Fed meeting and I'm willing to say now it's going to be literally 2,750 or BUST on the Nasdaq this month so tune in tomorrow to see how close we can get it.
