Hot Hand Handicaps the Bounce
How much gas does the rally have left in it?
1320 at best, on the S&P 500, before reality sets back in, according to the hottest technical analyst on the Street, ISI Group's Jeff DeGraaf.
The sudden appetite for oversold financials came at the expense of energy stocks, as a mini-rotation took hold. Energy stocks, at least if the Energy Select Spyder is your proxy (XLE-AMEX), have been the source of funds, along with idle cash. But breakouts in rank and file stocks are few and far between, despite the one day wonders we experienced last week in breadth and volume.
Stocks have been treated more like commodities for sure, valuation has not mattered a bit as stocks crack five and 10-year valuation troughs time and time again, burning buyers who, until last week, were getting more gunshy with each passing day.
Breadth last week was rather punk however; DeGraaf was looking for more like 9:1 than the reltively tepid 3:1 we witnessed on Wednesday's rally. And while he is respectful of a bounce, until credit markets improve, and crude cracks $121, DeGraaf remains skeptical.
With financials quickly approaching overbought status, the next trade might be back into energy. Still, "counter-trend bounces often last longer than anticipated", and DeGraaf admits it is possible the percentage of stocks above their 50-day moves back above 80%, from the 20% we saw early last week, before the bounce runs it course.
UBS Auction-Rate Buy Leaves Some Investors Out in Cold
The hits just keep coming for the private client division of UBS. Things are so bad the Joe Grano, the former bigshot at PaineWebber, would probably not be interested in participating in a buyout of the franchise, should UBS seek to sell it for a song.
The tax scandal is bad enough, but over 15 class action lawsuits are being brought on behalf of UBS clients. UBS announced everyone would be made whole, but it is not proving to be that simple:
UBS AG, Switzerland’s largest bank, plans to buy back as much as $3.5 billion of auction-rate preferred shares after being sued in the U.S. for fraudulently selling the securities as low-risk alternatives to cash.
Clients holding the securities in UBS accounts will be able to get their money back in full, the Zurich-based company said yesterday. The offer, the first by a broker, applies to shares issued by tax-exempt closed-end funds managed by firms such as BlackRock Inc. and Nuveen Investments Inc. It doesn’t include auction-rate debt from municipalities or student-loan providers.
Bloomberg
Initial reactions to the news were of relief:
``It’s fabulous,’’ Harry Newton, 66, an investor in New York who owns $3.5 million in auction-rate preferred securities, said about UBS’s decision. ``They were the worst of all the brokerage companies that sold this stuff.’’
This debacle has been overshadowed by bad news everywhere else, but has certainly contributed to the bewilderment on Main Street over what exactly is going on with banks and brokers. The IndyMac news threw more fuel on the fire; near panic has been the order of the day. Main Street is confused, and for good reason.
An old friend of mine was caught up in the machinations at UBS. After saving diligently for over 10 years she had finally accumulated a quarter million dollars to be used as a down payment for a house in Southern California.
A UBS rep got her to move her money from her longtime Washington Mutual branch a a year ago; but ultimately she had little contact with the asset gathering broker. He invested the funds in auction rate securities, telling her they were as good as cash, even as she explained that she was house hunting and would need to access the funds.
Several months later she submitted an offer an a house, and tried to pull a chunk of the money out to make the deposit and down payment. Only at this time was she told what had happened, and UBS offered to given her a loan against the securities, but was less than forthright about the economics.
She passed on the offer and walked away from the house; too bad considering she was well qualified and ready to buy from a motivated seller. The housing market is getting hit from a perfect storm.
I called her yesterday to email her a link to the story in Bloomberg. Since she had no debt from municipalities or student loans we thought she could see the light at the end of the tunnel.
Unfortunately question marks remain, given the email I just received back from her:
i was just told that they are only buying back the non tax ones since only 75% of them have paid out. apparently it’s a lottery that the companies like the ones i own, ING, DNP and cohen & steers are cashing out by cusip number. i now have to call each company and bitch--are they really “randomly” selecting cusip numbers or cashing out people they know and call to bitch!!
If anyone you know is caught in this situation make sure they go on the offensive if they have auction rate debt at one of the big mutual fund complexes. Waiting for them to contact you might not be so prudent, lottery or not.
And while an apology would be nice, getting your money back would be better.
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UBS Seeks to Appease Clients With Auction-Rate Buy
Bloomberg
UBS RAISES ADVISER PAY TO KEEP ITS TALENT
NY POST
UBS used ‘cloak of secrecy’ on US tax
FT
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The content contained in this blog represents the opinions of underthecounter. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No Positions
RIM Shakes Off a Needham Downgrade, For Now
iPhone fanboys were a-twitter today over analyst Charlie Wolf's downgrade of Research in Motion (RIMM-NASDAQ). The Needham & Co analyst pulled no punches; he thinks Apple is going to eat Research in Motion's (RIMM-NASDAQ) lunch:
Needham & Co. analyst Charlie Wolf expects the 3G iPhone to have a significant deleterious effect on consumer-handset sales at Research in Motion (RIMM, $109.00). Today he cut RIM to ‘Underperform’ from ‘Hold’ and chopped his 2009 EPS estimate to $4.80 from $6.25. Wolf says RIM’s fair value is $87 a share, 20% below the current price.
While RIM is about to launch an all-out offensive in the consumer space with several new handsets aimed at the consumer market—including the 3G Bold and touchscreen Thunder—Wolf says these will be ‘iPhone look-a-likes’ that don’t offer the same unique user experience.
At the same time, Wolf has a $240 price target on Apple (AAPL, $170.87). He sees the 3G iPhone driving Mac sales over the next several quarters thanks to everyone’s favorite ‘halo effect’ catch phrase. His fiscal 2009 EPS estimate of $6.95 is the highest out there—the consensus is $6.38. Tech Stock Radar
RIM shareholders were busy digesting news from yesterday's annual shareholder meeting. And Pacific Crest countered with their own note this morning claiming RIM sales are tracking ahead of plan at Verizon. Where is the stock going from here?
Prime Brokers Scrambling to “Locate a Borrow”
Back office operations are not my strong suit, but it is a trendy topic as Wall Street gets up to speed on the mechanics of "locating a borrow" and the new focus on naked short selling:
The naked short regulations promise to have more teeth than last weekend's announcement that the SEC would police rumors on Wall Street. That was widely interpreted as a weak attempt to herd cats.
Traders now won't be able to skirt borrowing rules to short shares of a rival firm. Up until now, traders were merely required to "locate" shares they'd be borrowing to short. As in: "Yeah, my cousin Vinny in Hoboken has them." The location requirement is a weaker standard that leaves plenty of room for "interpretation" if not outright abuse.
Pre-borrowing is a much firmer commitment and eliminates the probability that a stock lender will lend out the same shares to several different traders. Forbes
Patrick Byrne and a number of small-cap CEO's have long fumed over the practice, clearly having more shares sold short than exist in a stock's float is a clue that abuses are taking place. But it was not until the pile-on reached the financials, and threatened the viability of many high-profile former Blue Chips, and perhaps the system as a whole, that the SEC took action.
