Toro's Running of the Bulls Market Blog

Frank Partnoy NPR Interview on Derivatives

You can listen to Terry Gross's interview with Frank Partnoy on NPR's program Fresh Air here.  It is well worth the listen.

France Threatens to Walk

From Bloomberg

French President Nicolas Sarkozy will walk out of this week’s Group of 20 summit if his push for stricter international financial regulation flops, Finance Minister Christine Lagarde told the British Broadcasting Corp.

Sarkozy will refuse to sign any statement if he feels “the deliverables are not there,” Lagarde said in the interview. “I think he is very determined.”

My first thought was "So?  Who cares?"

But amazingly, someone (who isn't French) does.

"It’s a bombshell to be honest,” said Philip Whyte, senior research fellow at the London-based Center for European Reform. “If such a high-profile leader would walk out of the summit, it likely would be seen as very negative on the stock and bond markets. It would highlight the disunity among the leaders when the times require a show of unity, concrete actions and stabilization.”

I just can't see it.

Heck, I didn't even know France had a stock market...

Market Action, March 31 2009 - Light Volume Continues

Following up on yesterday's post, volume was 5.8 billion today.  And, unfortunately for the bulls, much of that came in during the last hour of the day when the market started selling off.  Volume at 2pm was barely pushing 3 billion.

Moves on light volume do not inspire confidence.

Critical Undersupply in Semiconductors Coming

So sayeth the head of the World Semiconductor Council.

The head of the World Semiconductor Council warned yesterday that recent aggressive capacity cuts in the D-Ram memory chip sector were likely to result in a severe shortage by the end of the year that could disrupt shipments of computers and other electronics.

The global D-Ram sector faced its biggest crisis in its 16 years of existence last year as industry over-expansion coincided with a drop in demand for computers.

But Frank Huang, chairman of the World Semiconductor Council and also of Powerchip, one of the biggest Taiwan D-Ram makers, said the industry would begin to recover by the second half of this year, and downstream producers of PCs and other electronic products would face "a shortage bigger than I have ever seen in the past 16 years . . . this will affect global PC shipments".

Last year's crisis, reflected in the price of D-Ram falling by more than half to below cost for most producers by the end of the year, led to a store of 1bn unsold D-Ram chips and nearly $10bn in total losses by the industry.

This prompted the biggest manufacturers, mainly in South Korea and Taiwan, to cut production. Others, such as Germany's Qimonda, fell into bankruptcy.

Nearly half of world production had been cut since the beginning of the year, said Mr Huang. This means that by June, the 1bn stockpiled chips will all be sold and by the end of the year there will be a global shortage of 2bn chips, equivalent to the D-Ram needed for 100m computers.

"It has been a difficult time but we can finally see spring coming," said Mr Huang.

Part of the reason for the impending shortage, he said, was that most D-Ram companies were facing financial difficulties and would find it hard to revive production quickly. The other reason was that "wolf has been cried too many times [on a market recovery]. Everyone is too cautious," he said.

I am very, very long semiconductor and semiconductor equipment companies.  They are, by far, my largest industry exposure.  I own a basket of 17 names, including four I have mentioned as net cash plays.

I began building a position in the chips too early, scaled back a bit, started adding more, and have been buying heavily over the past several months.

I have tended to do best buying companies in industries that have been bombed out.   Valuations are extremely low in the semis and some names in my basket could be 5-10 baggers. 

Because of extremely low valuations, I care not what happens in the near-term. I am looking 2-4 years out, not 2-4 weeks or 2-4 months.  So I sit and wait.

Market Action, March 30 2009 - Selling Off on Light Volume

After rising 20% over 15 trading days - the fastest ascent since 1938 apparently - the market is taking a breather, with the S&P 500 falling 5.4% over the past two days.

The two-day decline has been on light volume.  NYSE Composite volume was 5.5 billion on Friday and 5.7 billion today, the 32nd and 27th lightest volume days over the past 34 trading sessions respectively, which marks the sell-off that began on February 10 and the subsequent rebound starting on March 6.

The volume statistics have been interesting.  Over 17 trading days beginning on February 10, the S&P 500 fell 21.5% to the closing low on March 5.  Average daily volume during the decline was 6.6 billion.  Over the next 15 trading days, when the market rallied 22.0% until the closing high last Thursday, average daily volume was 7.3 billion.

The largest volume day was on March 18 at 8.94 billion when the S&P 500 rose 16 points to 794.  There have only been two other 8 billion plus volume days during this period, both down days - the following day on March 19 at 8.86 billion when the S&P 500 declined 10 points, and on February 27 at 8.74 billion, when the market fell 18 points to 735.

However, the lightest volume days have tended to be on declines.  Of the eight days with volume below 6 billion, six of them have been down days, including the last two.  The only two up days on light volume were on February 11 and 12.  The next four days were all down on light volume, with the market falling a total of 56 points and no trading session exceeding 6 billion.

Thus, it appears that the market has been selling off on lighter volume and rising on heavier volume.

It should be noted, however, that even though the past two trading days have been declines on light volume, volume was also light at the beginning of the sell-off in February before it picked up on higher volume.  Thus, simply because the last two days have been light does not mean markets cannot go lower on rising volume.

Some investors argue that bear markets end on capitulation bottoms, with heavy selling occurring at the ultimate low.  This can be the case but it is just as likely that bear markets exhaust themselves, exhibited by selling on volume that becomes lighter.  It may be that the bear market is in the process of exhausting itself.

Bankers Know Their Egregious Overcompensation Lead to Financial Collapse But Don't Really Care

Otherwise they would be slashing their pay.  But it is oh so difficult when you get used to living high on the hog, all the while destroying the world economy.

Banks almost unanimously agree that their compensation packages contributed to the global financial crisis but still are struggling to correct some of the flaws in their pay structures, according to a survey of financial institutions due for publication Monday.

The survey, conducted by U.K. management consultancy Oliver Wyman, was commissioned by the Institute of International Finance, a global association of banks and other financial companies based in Washington, D.C. It found 98% of responding banks "believe the compensation structures were a factor underlying the crisis."

But it also brought to light some of the obstacles to changing pay arrangements, including the concern among bankers they still don't have reliable methods to measure risks.

Government of the Bankers, by the Bankers, for the Bankers

But you all knew that, didn't you?

I am of the opinion that no one from Wall  Street should even be allowed within the Beltway, let alone the corridors of power, given how badly they have messed everything up.

Nassim Taleb is an Angry Guy

Just ask him.

Good article.

Signs of Life in Florida Real Estate

Florida was one of the states were home prices not only became stupid, they became excessively stupid. 

But now, after incurring a brutal bear market for the past three years, real estate in Florida is beginning to show signs of life.  Even though prices have been falling, unit sales are rising.

Florida’s existing home sales rose in February, making it the sixth consecutive month that sales activity showed increases in the year-to-year comparison, [emphasis added] according to the latest housing data released by the Florida Association of Realtors® (FAR). February’s statewide sales also increased over January’s figures in both the existing home and existing condo markets.

Existing home sales rose 20 percent last month with a total of 9,858 homes sold statewide compared to 8,181 homes sold in February 2008, according to FAR. February’s statewide existing home sales were 16.7 percent higher than January’s statewide sales.

Florida Realtors also reported a 15 percent gain in statewide sales of existing condominiums in February, continuing a trend in recent months for higher statewide sales of both the existing home and existing condo markets compared to year-ago levels. Statewide existing condo sales last month increased 25.1 percent over the total units sold in January.

Thirteen of Florida’s metropolitan statistical areas (MSAs) reported increased existing-home sales in February while 11 MSAs also showed gains in condo sales. It marks the eighth month in a row that a number of markets have reported increased sales.

Florida’s median sales price for existing homes last month was $141,900; a year ago, it was $199,300 for a 29 percent decrease. Industry analysts with the National Association of Realtors® (NAR) report a significant downward distortion in the current median price due to many discounted sales, including a large number of foreclosures. The median is the midpoint; half the homes sold for more, half for less.

Markets are clearing at lower prices as inventory gets blown out by banks no longer willing to hold inventory on their books and sellers capitulate knowing that they will not get the prices they once thought their homes were worth.

This is what happens at or near the bottom of a market, especially in one that has seen a brutal price correction to the point that home prices become attractive, as they are now in Florida.

Taiwan Rising on Heavy Volume

The Taiwan Taiex index is rising off the bottom on heavy volume. 

About half the index is technology and electronics companies.  Most of the tech companies in Taiwan sell into export markets.

 

This is good for the bulls.