Meanwhile, back at the Factory, I am captivated by one of the most desperate attempts at self-promotion that Wall Street has ever witnessed: the SEC suing Goldman Sachs (GS) for fraud. According to my lawyer, John Doe, the charges could possibly be the most irrelevant charges ever brought against anyone, anywhere, anytime.

The Facts

1) True, the CDO was sold by Goldman with a triple A rating. However, anyone who runs money should know well and good that a AAA offering 150 bps over swap has great potential for not being AAA after all. Right?

2) Yes, Goldman was long this deal. The issuer is almost always long some tranches of any deal–usually the most junior parts that have the toughest time being sold. This caveat is integral to selling the deal. We’re long it too!! They shout as though they hit the cash register on all the fees.

3) Gold. In reference to the gold market selling off, some circles allege that the catalyst was fear—fear that John Paulson may have to liquidate his gold holdings. I don’t buy that at all. Gold sold off because it sold off. John’s gold holdings could be sold off with little to no impact. He doesn’t run that much money. Also, he understands leverage very well. So well, that he shorted on over-leveraged real estate market and made a fortune. John is not going anywhere, nor are his gold holdings.

Now that we have our facts in clarifying order, we can move on to the markets. The market sold off broadly with the S&P lower by 19.61 points or 1.6%. The VIX gained 15% up by 2.47 points to close at 18.36. I am not convinced quite yet, but it looks very, very tempting to call a bottom in the VIX. I think it could spike more from here, but we could see even lower lows in the VIX later this year. After all, it is a bull market. There are plenty of problems out there, but we have GDP growth, and we have corporate profit expansion. We have the technicals and the fundamentals on our side.

Volatility Index Oil on Canvas

Best of all, Chief Market Technician at The Tinker Factory, the Timer, agrees with me. The market is bullish until proven otherwise. Friday was nowhere near the proof we need to call this the top and thus the beginning of a new significant move lower. Pullback, perhaps. Top, no. Don’t mess with the Timer. He is named what he is for a reason, and he is exceedingly good at what he does.

Now we have to wait and see how the crowd reacts to the reaction. Only then can we gauge if the sellers are met with buyers or more sellers. Stay tuned. I wasn’t buying on Friday because I don’t buy into selling; I buy into buying.

And the beat goes on.

The Wall Street Journal just posted a story on REIT valuations.

–The article states shares of REITs are trading at a premium to the value of their underlying assets for the first time since the height of the real-estate boom.

–Stock pickers believe that the valuations of REITs are a sign that these companies may be due for a correction.

–Goldman Sachs (GS) expects REITs to fall an additional 15% after the 10% sell-off in September.

Alexandria Real Estate Equities, Inc. Reports Exercise of Over-Allotment Option by Underwriters.

The underwriters (Barclays Capital, Credit Suisse and UBS Investment Bank) acted as joint bookrunning managers of the offering of 4 million shares of common stock. By fully exercising their over-allotment option to purchase an additional 600,000 shares, the net proceeds are approximately $235 million, after payment of underwriting discounts and commissions.

Some buyers some sellers and the middlemen. That’s a market.

Press Release

Meanwhile, back at the office, I just hung up with Tony Stark. Due to client confidentiality, I am unable to disclose whether I run money for Tony. I can say that due to the magnitude of cash flows in and out of Stark Industries, Tony often comes to me for guidance. He has also borrowed my plane, The Errol Flynn, on occasion.

Before I run off to afternoon meetings, my thoughts turn to the replay of today’s tape.

The S&P closed off .34% or -3.64 points. The NASDAQ closed positive 5.18 points or .24%. Spot gold was off $3.25 and sits at $1,002.90. Oil futures closed lower by 3.57% to settle at 69.50.

Friday Night Announcement

After a strategic late Friday night lowering of guidance, Potash (POT) gapped lower this morning. The bookies — who make money no matter where Potash trades — were out in full force and their comments boosted the stock off it’s lows at $90.82 to close at $93.09. Broadpoint AmTech reiterated their buy rating, price target $116. BofA/Merrill maintaned their buy rating, price target $114. Fading the crowd was Soleil Securities, who cut POT from to hold from buy, price target $88.

Friday night press releases are an ominous sign. If I owned any Potash, I’d be selling it as fast as I could.

Caterpillar Stats

In other news of interest, Caterpillar (CAT) released dealer statistics for the June to August period. Retail machine sales were down 48%. CAT has rallied from the low 20s to the mid 50s since March. Valuation seems unjustifiable here, especially when the forthcoming rally in the dollar is factored in.

Ponzi Accounting

One of my favorite shorts of yesteryear, Prologis (PLD) was back in the news today with an announcement of a consent solicitation for $2.96 billion in debt securities. Prologis has taken advantage of the market strength over the past 6 months to — through various mechanisms — raise an exorbitant amount of capital. The accounting at Prologis continues to resemble that of Enron. At some point, the common equity in this company will be wiped out. In reaction, Wall Street will respond with the ever popular retort: How could we have known?

Nostalgia

On September 23, 2008 I posted my analysis of Research In Motion (RIMM). In what was one of the largest profits on my P&L last year, RIMM moved from $100 down to $40 in just over a month. This year, sports analysts on business TV are pushing RIMM even harder than they were last. On a technical basis, the price action in RIMM looks healthier this year. However, the cycles run with the seasons. When RIMM lowers guidance this week, the shock factor will be of greater magnitude than last year. In what mirrors the timing of their release last year, RIMM is announcing their earnings on the same date — September 24th — and the same day of the week — Thursday. I own puts in RIMM and my nostalgic mind is counting down the time until their numbers hit the wires.

Rimm - September & October 2008

The market is gearing up for something big and I’ll continue to document it here — where as always — the beat goes on.

The beat goes on mid day in New York.


The S&P 500 is up 11.86 points, the DOW up 79.65 and the NASDAQ Composite up 21.35 at about 1:15 EST.


Steve Liesman reported earlier that commercial real estate exposure at large regional banks is undergoing major review by the Fed. Further, the Fed has yet to decide whether or not to do full stress tests.

The bank “stress tests” earlier this year were rigged. REITs have raised a tremendous amount of cash through equity and debt offerings in the past 6 months. Unfortunately, the leverage in the sector was immense, and the repair is just getting started — in spite of whatever public relations stress tests are administered.


Last evening, Polish central banker Stawomir Skrzypek was over the wire saying the financial crisis is entering a new phase and that asset sales cannot be the only method to amend the budget. In other words — we can’t just sell things, we need to cut spending. Sage advice. Perhaps central bankers around the world will take note. I am keeping an eye on Poland for several reasons. First, they are extremely vulnerable to credit risk. Second, there was a failed government bond auction last week — only half of the five year notes offered by the finance ministry were purchased. In reaction, analysts recommended selling Polish bonds across the curve. Last week, Polish central banker Dariusz Filar stated that Poland’s 2010 budget assumptions are appropriate, and he believes 2014 is a realistic date for Poland to adopt the Euro. Talks of a currency crisis have begun to make the rounds. The Polish Zloty is certainly vulnerable.


The National Banking League (NBL) received coverage in analyst land last evening. Analysts at BofA/Merrill see sales of Citigroup (C) shares by the government as having little dilution and maintain their buy rating.

“It is highly unlikely that the government would exit it’s position in Citigroup (C) in a disorderly fashion. Common shares will be disposed of through secondary offerings of large blocks of shares to institutional investors.”

“7.7 billion shares should be considered in the context of recent daily trading volumes of 1 billion shares per day.”

As BofA/Merrill competes for the banking fees to run the (C) secondary, there isn’t possibly any conflict of interest in these analyst comments. Are there?