Recession Rising Like Phoenix With Area Delinquencies Surging - Real Estate Fantasies Gone Bust

From Bloomberg.com

Recession Rising Like Phoenix With Area Delinquencies Surging
Oct. 1 (Bloomberg) -- Drive up to the Peaks Corporate Park in north Scottsdale, Arizona, and the only person you’ll encounter at the luxury office complex is a security guard.

The development was planned to offer executive suites with views of the McDowell mountains, neighbors such as General Electric Co. and a location just minutes away from Jack Nicklaus’s Desert Mountain golf courses. Plans to lure tenants haven’t materialized and today the complex in this city next to Phoenix is empty, the entrance blocked by a traffic barricade.

Delinquencies in the Phoenix area on loans backed by office, industrial, retail and apartment properties have risen more than five-fold since March, according to data compiled by Bloomberg. The Phoenix region has the second-worst U.S. delinquency rate, behind Detroit’s 10 percent. In Phoenix, the economic recovery looks a lot like a recession.

“A commercial recovery in markets that are heavily dependent on construction will be slow, which means the overall recovery will lag the nation as a whole,” said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia. “These are more volatile markets and getting back to normal could take years.”

Phoenix and other southern and western cities such as Atlanta, Houston and Dallas grew because they offered an affordable lifestyle to middle-class Americans, said Edward Glaeser, an economics professor at Harvard University in Cambridge, Massachusetts. That growth has slowed.

Slowing Growth

The Phoenix area’s population is forecast to increase 1.6 percent in 2009 from 2008 and 1.8 percent in 2010, according to a forecast by Scottsdale, Arizona-based real estate and economic consulting firm Elliott D. Pollack & Co. That’s the slowest growth since at least 1990. Employment may fall 6 percent in 2009 and another 1 percent in 2010, according to the firm.

The real estate crisis has brought economic growth to an end. Arizona had the highest unemployment rate since 1983 in July at 9.2 percent, according to the U.S. Bureau of Labor Statistics. The rate fell to 9.1 percent in August. Single- family building permits in metropolitan Phoenix may fall to 5,973 this year, down 81 percent from 2007, according to a consensus forecast of real estate and consulting firms and universities compiled by Arizona State University’s W.P. Carey School of Business.

“The economy in Phoenix is in tatters right now,” said Matthew Anderson, a partner at Foresight Analytics LLC in Oakland, California. “It’s now really hit the skids.”

The decline demonstrates that it may take even longer for states with slower growth to emerge from the recession.

Rising Unemployment

In August, 19 states had higher unemployment rates than Arizona’s, U.S. Bureau of Labor Statistics show.

Worse, more real estate is at risk of defaulting throughout the U.S. Investors in commercial mortgage-backed securities are holding assets with a delinquent unpaid balance of $28.9 billion, up more than five fold since June 2008, according to a report issued by the Congressional Oversight Panel. Under a worst-case scenario, the panel estimates that commercial real estate and construction loan losses through 2010 may total $81.1 billion at 701 banks with assets of $600 million to $80 billion.

“The problems in commercial real estate are just getting started and they will dampen what is already going to be a weak economic recovery,” said Jim Rounds, senior vice president and senior economist at Elliott D. Pollack. “In Arizona, the recession is probably going to last to the middle of the next calendar year.”

Growth Fallout

Wachter, who has been studying housing markets for more than two decades, predicts that Phoenix won’t see a recovery until at least 2012.

The city of Phoenix is suffering the fallout from growth that boosted its population from 983,403 in 1990 to 1.6 million in 2008, according to the Census Bureau. Single-family building permits in Maricopa County, which includes Phoenix, rose more than five-fold from 1975 to the peak earlier this decade.

Delinquencies for loans backed by office, industrial, retail and apartment properties that were bundled into securities in Phoenix increased five-fold since March, according to data compiled by Bloomberg.

The Phoenix office vacancy rate probably exceeds 30 percent, including space that’s leased yet vacant because the tenants have pulled out, Rounds said.

More offices are becoming available. Los Angeles-based commercial broker CB Richard Ellis Group Inc. said in a second quarter report 2.2 million square feet will be ready for occupancy this year and in early 2010.

Late Payments Rise

As tenants abandon space, landlords are struggling to meet their obligations. Commercial properties with mortgage payments 60 days late or more rose to 8.5 percent as of August in the Phoenix, up from 1.6 percent in March, data compiled by Bloomberg show.

“The commercial markets are the second shoe to drop,” said Marshall Vest, the director of the Economic and Business Research Center at the University of Arizona’s Eller College of Management in Tucson. Vest has lived in Tucson since 1970 and worked at the business school studying and forecasting the Arizona economy for 30 years.

For the last three decades, Arizona’s population growth has exceeded most of the nation’s. From 1970 to 2007, the state’s population more than tripled to 6.3 million. Its population growth ranked second or third in the U.S. from 1970 through 2008, according to Pollack data.

Onetime Growth Engine

The state was also an engine for job growth. Arizona was fourth in the U.S. in employment growth from 2000 to 2008 and second from 1990 to 2000. Arizona’s gross state product, a measure of overall economic activity, jumped to $249 billion last year from $30.3 billion in 1980.

Residential construction soared from 1980 to 2005, the peak of the new-home market boom in the state. Single-family building permits rose from 22,919 in 1980 to 87,415 in 2005, according to data on Texas A&M University’s Real Estate Center Web site.

The fallout can be seen throughout the Phoenix. Completed and empty office buildings and retail developments dot the desert landscape of the region, the 12th-largest metro region in the U.S. Vacant retail shops are hard to ignore.

‘Going Under’

“It’s kind of going under locally,” said Chris Dellrie, who was working at Axis Sports, a sporting goods and clothing store, one of at least two businesses open in a Gilbert shopping center that’s mostly empty.

The slump forced Opus West Corp., one of the region’s biggest real estate developers, to file for Chapter 11 bankruptcy this year, listing debts of $1.46 billion and $1.28 billion in assets, according to bankruptcy records. Opus West is part of the Opus Group, a real estate developer based in Minneapolis.

“It’s really nothing out of the ordinary,” said Craig Henig, senior managing director at CB Richard Ellis in Phoenix. “They believed like everyone that the market would expand.”

At 24th at Camelback II, an 11-story, 300,000-square-foot office building going up in Phoenix near the Arizona Biltmore Country Club, developer Hines hasn’t preleased any of the space. The building will be finished in the first quarter of 2010, said Kim Jagger, a spokeswoman for the Houston-based real estate company. Jagger said there are at least half a dozen potential tenants.

‘Horrible Economy’

People who’ve moved to Phoenix and adjacent suburbs have found life difficult as the economy has slumped.

Ambre Mauro moved to Gilbert, a suburb of Phoenix, in March after struggling in Oregon.

“The economy was horrible there,” said Mauro, 25, who graduated from Brigham Young University-Hawaii with a degree in exercise sports science. “Eventually I decided to come here.”

Things aren’t much better in Arizona. Mauro now holds two jobs. She’s a personal trainer and front desk clerk at a local gym and a waitress at a Japanese restaurant, where she makes about $10 an hour, including tips.

“I have a four-year degree and I never expected to be a waitress,” Mauro said.

About 25 miles northeast of downtown Phoenix, the Peaks Corporate Park stands as a reminder of just how optimistic developers were about the region’s growth prospects.

Prestigious Neighbors

The office complex was built in one of the most prestigious and wealthy parts of the state, where the median price for a new home was $920,000 in the second quarter.

A Web site for the development boasts that it’s near several resort hotels including the Boulders, a Waldorf Astoria property, and “neighbors such as General Electric, Pacesetter, DHL, Taser, USF Bestways, Toll Brothers, Pulte Homes.” Dale Dowers, a principal with the developer, didn’t return calls or e-mails for comment.

With no tenants, the development’s courtyard is barren but for a sculpture featuring wildlife.

Julian Robertson: Inflation Risks and the United States debt blackhole...blackhole...blackhole...echos

I think he speaks reality.

Side note: It's amazing how everything we own (assets), has gone down in price (deflation); while things we consume (gas, food, utilities, etc), has gone up in price (inflation). Its a double whammy especially when you are making principle and interest payments on 'assets' based on a previously inflated price.

A little dose of economic reality

Visa chairman says he doesn't see recovery, but stabilization.

Ron Paul: "Goldman Sachs Has A Lot Of Influence In Our Treasury And A Lot Of Influence In Our Federal Reserve"

Goldman Sachs is bigger than the FED and the FED is bigger than CON-gress. Towards the end he says it and it was time to end the interview. How about that for the mainstream media?

Tim Hawkins - The Government Can

Why Our Economy Is Utterly Screwed

From: www.market-ticker.com Karl Denninger

Steve Liesman once again stunned me with his lack of understanding of matters economic today, when he commented that "in all recessions since 1970 at least the original part of it (recovery) has been jobless."

Yes, Steve, but why is any of this a surprise? What part of this graph isn't instantly obvious to anyone with more than two firing neurons in their head?

That's credit and population growth normed to a base of 1970. Population went from roughly 205 million to roughly 304 million during that time, a 50% increase.

Outstanding consumer credit went from $128 billion to $2,525 billion, or a 1,973% increase - and this is only consumer credit, ignoring mortgages, financial firm credit, business credit, commercial real estate and of course government debt!

Why are we not seeing "robust" economic growth when we exit recessions? Why is there no real hiring going on? Why can we not have a robust economic recovery? Why are we are replacing good jobs with "McJobs" that pay half as much - or less? And more importantly, where did all the "so-called prosperity" really come from, especially from 1994 on?

In each and every instance of recession from 1970 onward we have "pulled forward" more and more demand and created fake "prosperity" through the creation of ever more debt that we have goaded consumers to take on. By doing so we have crippled the ability of the economy to grow, redirecting as much money as possible to a handful of people and firms (commonly known as "banks" and other "financial companies") instead of directing that effort and money into productive enterprises such as building cars, television sets and similar items.

THIS time though the recession didn't come from "ordinary business conditions"; it instead happened because the credit carrying capacity among both consumers and businesses hit the wall - they could no longer make the debt service payments and started to default.

It began with "subprime" mortgages but that was nothing other than the first "hiss" of trouble out of the pressure vessel as the structural integrity of the fraud-laced credit system, where "capacity to pay" became a bad joke, had begun to disintegrate.

We pushed the envelope of fraudulent credit creation and the sale of fraudulently-underwritten debt too far - and it blew up in our collective faces!

Rather than admit complicity in the myriad Ponzi-style scams that underlay all of the financial system for more than thirty years (or have it shoved in their face) The Fed and financial "wizards" along with The Bush Administration (who was responsible for and complicit in refusing to fix the fraud during the 00-07 timeframe) chose to try to sweep it under the rug with "yet more liquidity" and "yet more lending."

President Obama and his administration made a critical error after having won in November by refusing to stand up and take these scammers on face-to-face.

He decided to instead continue and even accelerate the scam!

It can't and won't work because the underlying issues have not been resolved and the bogus debt has not been forced out and defaulted - it remains clogging up the system, destroying the ability of the credit-intermediation system to function properly.

Period.

Folks, the facts are impossible to ignore. We are in this recession because consumer and business borrowing capacity hit the wall. We have removed almost none of that outstanding credit from the top to today, as this chart shows (which I have printed here an endless number of times!)

We have taken a measly 4.5% off the maximum outstanding credit amount (incidentally reached in January of this year) to date. 4.5%! That's nothing - it is absolutely insufficient to return the system to normal functioning and restore sound economic growth - we need five times or more that much contraction!

The bad news folks is that we will get that contraction, and if The Government and Fed do not force it to happen "voluntarily" we'll get double that much - as much as a 50% decrease in outstanding credit - coupled with a deflationary credit collapse.

The small crack in the market the last few days is a warning: The fraud-laced game is about up and we are running out of time to do the right thing.

Stop listening to the media idiots - they have not and will not discuss this facet of the crisis because doing so means admitting that their corporate parents are a huge part of how we found ourselves in this mess, along with all the advertising they've stuck in your face for the last 30 years to "go on, buy now, pay later!"

But irrespective of whether CNBC talks about it or not the mathematical reality of credit capacity as it relates to both population and earnings capacity is a mathematical reality. No amount of magical handwaving will change it, leaving us with only two choices: we either force the bad debt out into the open and default it, thereby shrinking both the balance sheets of banks and consumers (at the same time) or we continue to try to "press our bets" and take the risk of a second credit-system dislocation that will be far worse than what we experienced last fall and this spring.

At present we are choosing path #2 - a river that is quickening in pace.

Does anyone have an idea what that funny roaring noise around the next corner might be?

PCP

It looks like PCP will get a pop up today because of the Boeing news. I think it is going to fly through the stop price.

Of course, the news from Boeing, we have heard before. They announce that the first flight of the 787 is scheduled for such and such a date, then they have to push it forward again. I am glad I didn't get in yesterday. Will re-evaluate to see if a short trade is still good on it.

Possible Shorts

Looking at PCP and BNI for shorting opportunities. These stocks hit resistance areas and are looking to reverse.

PCP
Current Price $86.75
Stop $88.76
Target $81.00

BNI
Current Price $83.32
Stop $84.91
Target $79.00

Looking for entry today. I will probably use JAN 2010 ATM options.

I will update if I enter any positions.

Cash for Clunkers to end on Monday

Cash for Clunkers program sold 457,000.

You know what I find amazing. This program cost $3 billion. GM plans to rehire 1300 of its workers back. So what does that equal; $2.3 million for each job saved. How about that for $3 billion well spent. So, for the government to save 10 million jobs we need to spend $23,000,000,000,000. Yes that is 23 trillion!!! Brilliant.

Also I find it amazing that we have taken people with no car payments and now have provided them with a $25,000 debt plus higher insurance costs. Isn't that wonderful.

To go with my previous post: "If you cannot enslave an individual by virtue of his own debts then enslave the entire population by casting their government into debt." This fills both sides of that quote.

Anonymous Quote

"If you cannot enslave an individual by virtue of his own debts then enslave the entire population by casting their government into debt."

Trading Update QID

I am still holding my position in QID that a purchased a few weeks ago. I am looking for a $33 target to sell.

SRS Class Action Lawsuit filed 08/05/2009

This is an ETF that I trade regularly. It looks like we things are going to get ugly.

Labaton Sucharow LLP Files Class Action Lawsuit Against Proshares’ Ultrashort Real Estate Proshares Fund (SRS)

Labaton Sucharow LLP filed a class action lawsuit on August 5, 2009 in the United States District Court for the Southern District of New York, on behalf of all persons who purchased or otherwise acquired shares in the UltraShort Real Estate ProShares fund (the “SRS Fund”), an exchange-traded fund (“ETF”) offered by ProShares Trust (“ProShares”), pursuant or traceable to ProShares’ false and misleading Registration Statement, Prospectuses, and Statements of Additional Information (collectively, the “Registration Statement”) issued in connection with the SRS Fund’s shares (the “Class”). The Class is seeking to pursue remedies under Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”).

If you bought shares in the SRS Fund pursuant to the Registration Statement and would like to consider serving as lead plaintiff or have any questions about the lawsuit, please contact Stefanie J. Sundel, Esq. of Labaton Sucharow, at 800-321-0476 or (212) 907-0700, or via email at ssundel@labaton.com. Lead Plaintiff motion papers must be filed with the United States District Court for the Southern District of New York no later than October 5, 2009. A Lead Plaintiff is a court-appointed representative for absent class members. You do not need to seek appointment as Lead Plaintiff to share in any class recovery in this action. If you are a class member and there is a recovery for the class, you can share in that recovery as an absent class member. You may retain counsel of your choice to represent you in this action.

If you are a member of this class you can view a copy of the complaint and join this class action online at http://www.labaton.com/en/cases/Newly-Filed-Cases.cfm

The complaint names ProShares; ProShare Advisors LLC, SEI Investments Distribution Co., Michael L. Sapir, Louis M. Mayberg, Russell S. Reynolds, III, Michael Wachs, and Simon D. Collier, as defendants (collectively, “Defendants”). ProShares sells its Ultra and UltraShort ETFs as “simple” directional plays. As marketed by ProShares, Ultra ETFs are designed to go up when markets go up; UltraShort ETFs are designed to go up when markets go down. The SRS Fund is one of ProShares’ UltraShort ETFs. The SRS Fund seeks investment results that correspond to twice the inverse (–200%) daily performance of the Dow Jones U.S. Real Estate Index (“DJREI”), which measures the performance of the real estate sector of the U.S. equity market. Accordingly, the SRS Fund is supposed to deliver double the inverse return of the DJREI, which fell approximately 39.2 percent from January 2, 2008 through December 17, 2008, ostensibly creating a profit for investors who anticipated a decline in the U.S. real estate market. In other words, the SRS Fund should have appreciated by 78.4 percent during this period. However, the SRS Fund actually fell approximately 48.2 percent during this period—the antithesis of a directional play.

The complaint alleges the Defendants violated the Securities Act by failing to disclose that the SRS Fund is altogether defective as a directional investment play. Defendants failed to disclose the following risks in the Registration Statement: (1) inverse correlation between the SRS Fund and the DJREI over time would only happen in the rarest of circumstances, and inadvertently if at all; (2) the extent to which performance of the SRS Fund would inevitably diverge from the performance of the DJREI—i.e., the probability, if not certainty, of spectacular tracking error; (3) the severe consequences of high market volatility on the SRS Fund’s investment objective and performance; (4) the severe consequences of inherent path dependency in periods of high market volatility on the SRS Fund’s performance; (5) the role the SRS Fund plays in increasing market volatility, particularly in the last hour of trading; (6) the consequences of the SRS Fund’s daily hedge adjustment always going in the same direction as the movement of the underlying index, notwithstanding that it is an inverse leveraged ETF; (7) the SRS Fund causes dislocations in the stock market; (8) the SRS Fund offers a seemingly straightforward way to obtain desired exposure, but such exposure is not attainable through the SRS Fund.

Plaintiff is represented by the law firm Labaton Sucharow LLP. Labaton Sucharow is one of the country’s premier national law firms that represent institutional and individual investors in class action, complex securities and corporate governance litigation. The firm has been a champion of investor rights for over 40 years and has been recognized for its reputation for excellence by the courts. More information about Labaton Sucharow is available at www.labaton.com.

What the FED doesn't want you to know.

Visit msnbc.com for Breaking News, World News, and News about the Economy

QID

Bought a position of QID PROSHARES NASDAQ ULTRASHORT at $27.14. Stop at $26.80.

John Stewart takes on Goldman Sach's

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Pyramid Economy
www.thedailyshow.com
Daily Show Full Episodes Political Humor Joke of the Day

WNR

Bought to close WNR JUL7.50 PUT @.85 for a LOSS. Just rather buy them back at close to par today and take the loss. I don't know what next week could bring.

Are you kidding me? Housing starts are up. Thats insane!

This can not be good:

July 17 (Bloomberg) -- Housing starts in the U.S. unexpectedly rose in June as construction of single-family dwellings jumped by the most since 2004, signaling the market is stabilizing. The 3.6 percent increase brought starts to an annual rate of 582,000, the highest level since November and followed a 562,000 pace in May that was higher than previously estimated, the Commerce Department said today in a Washington. Building permits, a sign of future construction, rose the most in a year.

"Signaling the market is stabilizing" That is insane!!!

How can building more houses be good for the economy? We have so many houses in foreclosure and so much available inventory. This is foolish. I think building more in this current financial crisis is criminal. It will bring down housing values further, destroying equity (whatever is left) for most people. The lenders are behind this taking money from the discount window at 0% basically and lending at 5, 6, 7 or more percent. If the loans fail, there is still 'plenty' of TARP money available. That way we can see more banks, etc make $3-4 billion/quarter, while the taxpayer gets fleeced.

I get sicker by the day.

The Real Price of Goldman's Giganto-profits

I am on a rant today about Goldman Sachs...Sorry.

The Real Price of Goldman's Giganto-profits, Matt Taibbi - Click for some entertaining reading.

Another must watch: Glenn Beck explains the Goldman/Federal Gov't connection

This is a must watch video. Goldman Sachs has got their fingers into everyone's arse in Washington and their whole hand in our pockets.

Max Keiser takes offense to Goldman Sachs story

I love this. Watch him go off on Goldman Sachs.

Part 1



Part 'Deux' 2

Green shoots or no green shoots. Behind JPM's number with David Faber.

About 2:30 into the video, look at the charts he pulls up. See the green shoots there?

Morning Joe 7/16/2009

U.S. Jobless Claims Slump, Reflecting Timing of Auto Layoffs (Bloomberg)
Foreclosures rise 15 percent in first half of 2009 (AP)
CIT Calls Bailout Unlikely, Fuels Bankruptcy Concern (Bloomberg)
JPMorgan Profit Rises 36 Percent, Beating Estimates (Bloomberg)
Treasury Bets U.S. Financial System Can Weather CIT Collapse (Bloomberg)
China’s Economic Growth Accelerates to 7.9% on Loans (Bloomberg)
Talks fail to break California budget crisis (Reuters)
Commercial Real Estate crash would cripple U.S. Banks (Huffington Post)


Bank of America Corp - The biggest U.S. bank by assets said net charge-offs on its credit-card trust rose to 13.86 percent in June from 12.5 percent a month earlier.

What Wall St Owes You

Watching Goldman: BNN speaks with Janet Tavakoli of Tavakoli Structured Finance.

No holes barred on how she feels about Goldman Sachs and government.

http://watch.bnn.ca/squeezeplay/july-2009/squeezeplay-july-15-2009/#clip193973

SUN

Bought SUN AUG22.5 PUT SUNTX $1.15 for protection. Order filled.

Original post on trade: Click Here

How about Charlie Gasperino vs Goldman Sachs - He gets booted by GE

Elliot Spitzer on Bloomberg - Goldman Sachs

Backlash against Goldman Sachs-MSNBC

Visit msnbc.com for Breaking News, World News, and News about the Economy

Budget Deficit tops $1 trillion for first time.

Budget Deficit tops $1 trillion for first time. (AP News)

This goes along with the email I sent yesterday.

SUN

Bought a position in SUN @ $22. There are bullish divergences on the stochistic, MACD and directional. The refiners have been way oversold.

I have placed a stop at $21.45 which was Wednesday's low (07/08). Looking for a target to $26. Adjust stop to $24 if we reach $24 or higher to lock in profit.


CLICK CHART TO ENLARGE

SPY

Sold to close position SEPT SPY88 PUTS SZCUJ @ $5.15 for 18% GAIN.

SPY

Bought to open half position SEPT SPY88 PUTS SZCUJ @ $4.35. Will add other half if we close again below 200 moving average. This is an insurance policy in case of a drop down to $85.00ish within the next couple of weeks.

SRS

Bought to close all SRS AUG18 PUTS @ 95 cents for a 18% GAIN on the close.

Just felt like covering my position and will look for possible re-entry later in the week.

Statement by Chairman Gary Gensler on Speculative Position Limits and Enhanced Transparency Initiatives

Below is a link of the CFTC's initiatives regarding commodity futures. This might change the way ETF's are traded. We will wait and see.

• http://cftc.gov/stellent/groups/public/@newsroom/documents/pressrelease/genslerstatement070709.pdf

UNG

UNG - US Natural Gas Fund has been halted. Look at the volume in June. That could explain the halt.

From prospectus:

• Liquidity Risk - The risk that the market cannot accommodate an order to buy or sell a security in the desired timeframe, or the risk that trading on a stock exchange may be halted because of market conditions.

Issuing more shares: click here for news link

UNG

UNG Halted

Mid-day News Update

Big banks don't want California IOU's (WSJ)
Oil, Gas Market Speculation May Face Restrictions (Bloomberg)
Delinquencies on Home-Equity Loans Reach Record (Bloomberg)
U.S. House May Include Surtax on Wealthy in Health-Care Package (Bloomberg)
Alcoa's Kleinfeld Say Aluminum Usage Recovering in China, U.S. (Bloomberg)
U.S. must be open to second economic stimulus: Hoyer (Reuters)
U.S. consumers fall behind on loans at a record pace (Reuters)
Banks don

Related articles by Zemanta

• Get ready for an Asian spending wave (money.cnn.com)

SPY

Sell to close SEP SPY90 PUTS SWGUL @ $5.20 for a small GAIN. $$

Underlying: getting gummed up here; hitting major support at the Daily 200. Will re-evaluate towards end of day for entry again.


I am still net short the market with SRS naked or cash secured puts and GS PUTS. Just want to see how this head and shoulder pattern will play out.

More NYSE and GS shinanigans...ooops!!!

"We Screwed Up" (ZeroHedge.com)

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• Taibbi: Impending Rule Change Means Goldman Sachs Stock Manipulations Can't Be Tracked (crooksandliars.com)

SRS Trade Update

UPDATE:

Order filled.

Sold to open SRS AUG18 PUT SAKTL @$1.10 . Added more for a position avg of $1.17.

Link to original post: Click here.

Mid-day News Update

• Bail set at $750,000 for ex-Goldman Programmer (Reuters)
• U.S. ISM Service Industries Index Increased to 47 (Bloomberg)
• World Bank tells G8: 2009 remains a dangerous year (Reuters)
• Bank of America Writeoffs May Rise 10%, Analyst Says (Bloomberg)
• Earnings Drop Worldwide as Job Losses Hurt Consumers (Bloomberg)
• Microsoft Plans for Worst as U.S. Companies Show No End to Fear (Bloomberg)
• Florida Aided Allen Stanford, suspect in huge swindle (Miami Herald)

SRS

Looking for a naked or cash secured put position on SRS AUG18 PUT SAKTL. I have an open order at $1.10. I will update if filled.

SPY

Buy to open a position SPY SEP90 PUT SWGUL @ $4.85. Order filled.

Underlying Targets:
Target of $87.00 then re-evaluate
Stop of $90.50

I did this based on the weekly chart indicators as general downside protection and hedge for naked or cash secured positions (excluding SRS PUTS).

A Goldman Sachs trading Scandal?

Check out the links for a breaking news story on a possible Goldman Sachs trading scandal. This could reveal the Goldman's trading methods and programs.

Click one of the links below:

ZeroHedge.com
Reuters
CNBC

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• Goldman Sachs: The great American bubble machine (seattlepi.com)
• Taibbi: Impending Rule Change Means Goldman Sachs Stock Manipulations Can't Be Tracked (crooksandliars.com)

7 more banks fail as FDIC mulls rules for sales

7 more banks fail (AP)

Matt Taibbi interview after the Goldman Sachs article he wrote

Below is the link for the Matt Tiabbi interview conducted on BNN.ca

http://watch.bnn.ca/the-close/july-2009/the-close-july-2-2009/#clip189690

Extended Trading

NYSE extending trading until 4:15pm today.

Employment Data or should I say Unemployment Data

Today's unemployment numbers I think are going to look good compared to what the picture will look like down the road. Another 467,000 jobs cut and an unemployment rate of 9.5%.

There are many factors helping push the unemployment number higher:

• High gasoline prices
• High food prices
• High debt load costs
• Extremely high health care costs...which gets worse with more lay offs
• Higher property tax rates despite lower housing values. Mine went up over 30% in the last 2 years.
• High college tuition
  
• High utilities (electricity, water, etc). Some areas have experienced about a 100% increase in water costs.
• Higher sales tax rates
• Higher etc, etc, etc......

You ask how this will make things worse? The average American is getting squeezed to the limit. They are buying necessities only and have literally stopped buying the bubble creating items that started all this mess (housing, furniture, tvs, disposable cars, easy credit). An example: my trips to Sam's Club. I used to see at least 1 flat panel TV being pushed through the checkouts almost every time I went. Since the beginning of the year, I honestly don't think I have seen one being sold. I average about 1 trip a week.

Driving around Houston, I see many shopping center strips 100% empty and very dead mall parking lots. These are all signs of uncertainty by the consumer and business owners. Keep in mind, Houston has been relatively immune to the big downturn experienced by other major cities.

There are too many un-sustainable jobs. So many jobs that were created in the last 10 years are jobs that supported the bubble creation. Now that the consumer is retrenching, paying off the debt created by the bubble, and buying only the necessities, these jobs are in jeopardy.

This bubble is so big that it will take much more than a 'microwave' fix. The commercial real estate problem that is around the corner will not get the support from the government as the housing problem did. Fist of all, the Government is tapped out. Secondly, the public is sick of bailouts. Third, banks will have to adjust commercial mortgages down to reasonable levels or risk losing the whole mortgage. There will be large write-offs that could be devastating.

Many local municipalities based their budgets on the inflated property values. Well guess what, we are seeing many that could fold soon. Homeowner associations will feel the pinch as well.

I think all the problems will snowball until the average person gets their balance sheet in positive equity and we return to pre-bubble circa mid '90s. There will be a lot of pain, but that is the reality we face.

I don't think we should be fooled by the 'green shoots' touted all day long on the major media outlets. More layoffs (public and private), downsizing, and small business closures could get us to a 12% unemployment rate easily by mid 2010.

Follow up on the Joe Saluzzi post

Here is a little weekend reading for you to understand the program trading that is going on.

Toxic Trading - Saluzzi

FLR

Sold to close the remaining position in FLR FLRVJ @ $6.20 for a 10.7% GAIN. Not much, but I will look to for a better trade.

Joe Saluzzi - I saw this yesterday and he talks about the market manipulation

I saw this yesterday and could not believe it. I follow Joe Saluzzi on Twitter and found the clip on YouTube. He talks about market manipulation and principal program trading. Guess who he is pointing fingers at? Take the time to watch the whole thing.

http://www.themistrading.com/

WNR

Now that Goldman Sachs lowered estimates on the refiners, I feel better about keeping my WNR cash secured puts. On a bad tape yesterday, the refiners did well. So my take is Goldman was buying as they downgraded. I think we will be OK on the JUL7.50 puts.

Foreclosures aren't just for subprime anymore

From Bloomberg:

Delinquency rates on the least risky mortgages more than doubled in the first quarter from a year earlier as U.S. efforts to help homeowners failed to keep pace with job losses that pushed more borrowers toward foreclosure.

Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today in a report. First-time foreclosure filings on the loans rose 22 percent from the fourth quarter, the report said.

“I’m very concerned about the rise in delinquent mortgages and foreclosure actions,” Comptroller of the Currency John Dugan said in a statement released with the quarterly report. President Barack Obama’s plan to create “sustainable, payment- reducing modifications is a positive step that should show significant benefits in the coming months,” Dugan said.

Obama’s program, unveiled Feb. 18, aims to help as many as 4 million borrowers by modifying loans and calls for Fannie Mae and Freddie Mac to refinance mortgages for as many as 5 million borrowers who owe more than their homes are worth. Foreclosure filings surpassed 300,000 for a third straight month in May, according to RealtyTrac Inc., and the U.S. economy has shed about 6 million jobs since the recession began in 2007.

Serious delinquencies on prime loans, which account for two-thirds of all U.S. mortgages, rose to 661,914 in the first quarter from 250,986 a year earlier, according to the report. Overall, mortgages 60 days or more past due rose 88 percent from last year, the report said.

Mortgages modified to help struggling borrowers stay in their homes fail within nine months more than half the time, the report said. About 53 percent of mortgages modified in the first quarter of 2008 were 30 or more days delinquent after six months, and increased to a 63 percent default rate after a year.

“Rising serious delinquencies are a leading indicator of increased foreclosure actions in the future,” the agencies said.

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Goldman Sachs lowers view on Oil Refiners to Cautious (VLO, SUN, TSO)

We have done CSP's on these. Just wanted to mention that Goldman Sachs lowers their view on Oil Refiners to Cautious, citing an "ugly" outlook for the group. The firm reiterated their Sell rating on Valero (NYSE: VLO) and downgraded Sunoco Inc. (NYSE: SUN) and Tesoro Corporation (NYSE: TSO) to Sell.

The firm started coverage on Western Refining Inc. (NYSE: WNR) with a Neutral rating and reinstated coverage on CVR Energy, Inc. (NYSE: CVI) at Neutral.

The firm upgraded Marathon Oil Corporation (NYSE: MRO) from Sell to Neutral.

The firm continues to prefer Neutral rated Frontier Oil Corp. (NYSE: FTO) and Holly Corp. (NYSE: HOC).

These will get hammered down for the next few days. Then we can take a look at them.

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CNBC-Larry Levin-"This market continues to be propped up by government intervention and manipulation."

As you all may know, CNBC is just a bunch of noise for nothing. But every once in a while, a nugget comes out. Larry Levin states that this market is manipulated and propped up by the government. At the 2 minute 20 second portion of the clip, listen to what he has to say (2:20).

How much more can you milk the cow?

GS

Sold to close GS OCT140 PUTS @ $15.00 for a $2.00 GAIN per contract. 15.3% GAIN per contract.

I feel this is a good exit point for now, even though I didn't reach the second target price.

FLR and GS Trades

Both FLR and GS have reached my first target price.

Next target FLR: $46.00

Next target GS: $137.00 then $135.00

I will monitor these positions for exit trades.

See previous posts.

FLR

Sell to close OCT50 PUTS FLRVJ @ $7.00. Flour FLR just reached my first target price of $48.

I took half of my position off for a 25% GAIN. Will keep the rest for the next target of $46.00.

Record Unemployment Rates in 8 States

Michigan again reported the highest jobless rate, 14.1 percent in
May. The states with the next highest rates were Oregon, 12.4 percent;
Rhode Island and South Carolina, 12.1 percent each; California, 11.5
percent; Nevada, 11.3 percent; and North Carolina, 11.1 percent. Six
additional states and the District of Columbia recorded unemployment
rates of at least 10.0 percent. The California, Nevada, North Carolina,
Oregon, Rhode Island, and South Carolina rates were the highest on re-
cord for those states. Florida, at 10.2 percent, and Georgia, at 9.7
percent, also posted series highs. Nebraska and North Dakota registered
the lowest unemployment rates, 4.4 percent each. Overall, 12 states
and the District of Columbia had significantly higher jobless rates than
the U.S. figure of 9.4 percent, 29 states reported measurably lower rates,
and 9 states had rates little different from that of the nation.

GS

Bought to open a small position in Goldman Sachs. Weekly looking good and 233 unable to push through 50ema. First target @ 139.50 and second target $135.00.

GS OCT140 PUTS GSVH @ $13. Will keep a conditional stop order in place if underlying breaks above $144.

EEM

Sold to close EEM JUL32 PUTS EEMSB @ $2.00 for a 33% GAIN in 1 day.

WNR

I don't like the price action. Keeping a close eye for a possible bail. Will update.

SRS

$$ Closed the remaining naked put positions JUN19 PUTS SAKRM @ $.10 for a 92% GAIN. I no longer hold any naked put positions on SRS. Currently holding stock with covered calls at the JUN20 and JUN21 strikes.

SRS

Closed more of my SRS JUN19 NAKED PUTS @ $.15 for a 88% GAIN. Still holding a small position now. $$

VLO

Stopped @ $17.061 for a small loss. Maybe next time. Purchased @ $17.20. $$
Less than 1% loss.

VLO

Bought Valero Energy Corp VLO @ $17.20. Have a $.25 trailing stop. Short term target of $17.70.

FLR

Bought to open FLOUR CORP FLR OCT50 PUTS FLRVJ @ 5.60. Target $48. $$

EEM - Ishares MSCI Emerging Markets Fund

$$ Bought EEM JUL32 PUTS EEMSB @ $1.50. Target of $31 on the underlying.

SRS

I closed half of my position JUN19 PUTS SAKRM @$.50 for a 61% GAIN. I will watch closely for an exit on the rest. There is some housing news at 1:00pm today that could move it.

SRS

I bought to close JUNE18 PUTS SAKRL @ $.25 for a 77% GAIN.

SRS

The previous post stated JULY puts on SRS. I meant JUNE.

SRS

If anyone has any JUNE cash secured or naked puts on SRS, think about your profits and close some positions. If you don't mind possibly being put the stock hang on until Friday. I say this because we are so close to the strike prices of our puts. I would not hang on if there is only $.25 cents left in the option.

Economics...Innocent Bystander

It is the month of August, on the shores of the Black Sea. It is raining, and the little town looks totally deserted.

It is tough times, everybody is in debt, and everybody lives on credit.

Suddenly, a rich tourist comes to town.

He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher.

The Butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.

The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel.

The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town's prostitute that in these hard times, gave her "services" on credit.

The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.

At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.

No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism.

And that, ladies and gentlemen, is how the United States Government is doing business today.

www.silverbearcafe.com