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Dallas, TX
February 24, 2010, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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How One Bank Beat The Odds And Made Money From "Toxic" Assets
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What's Hot Today: |
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Today's Economic Calendar:
- MBA Purchase Applications 7:00 AM ET
- New Home Sales 10:00 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- 5-Yr Note Auction 1:00 PM ET
News For Thought
Thursday's health care summit could be tricky for both GOP and Dems. According
to The Washington Post: "Republicans are preparing to use Thursday's White
House health-care summit to sell their own ideas for using the private
marketplace to expand coverage and reduce costs, but they remain wary of
fumbling away what they believe is an advantage on the issue heading into
this year's critical midterm elections." It's going to be a balancing act
as "GOP leaders are acutely aware of the stakes involved in the extraordinary
bipartisan gathering. An effective performance could give their party a
vital image boost as November approaches. But if the party's delegation
stumbles or oversteps, President Obama and congressional Democrats could
see the session provide new life to the stalled health-care legislation
they have been laboring over for a year."
Tea Party turns on Scott Brown. According to The Los Angeles Times: "For
Scott Brown, it appears that the "tea party" is over. Literally overnight, the
fledgling Republican senator who ended Democrats' filibuster-proof majority by
winning a special election in Massachusetts has gone from being the darling of
America's conservative activists to being their goat."
According to the report, almost as soon as Mr. Brown voted to end the Republican
filibuster on the Democrat proposed jobs bill: "the political blogosphere exploded.
Cries of "letdown," "betrayal," "sellout," and "RINO" -- "Republican in name
only" -- flew around Twitter. By late Tuesday afternoon, more than 4,200 people
had left comments on Brown's Facebook page, most harshly negative."
And here's what's most interesting, and could be indicative of how serious voters
are about the situation in Washington. According to the report: "Tea party and
other conservative activists felt particularly let down by Brown's Monday vote
because many of them had poured money and manpower into his underdog bid to capture
the Senate seat long occupied by liberal icon Edward M. Kennedy. By Monday night,
many of his Twitter followers had concluded that a White House run had become
out of the question -- even as he entered Day 19 of his Senate tenure."
Politics is a tricky business indeed. Some of the folks who've been elected lately
seem to forget that they were elected to do things based on their constituent's
wishes not their own. It's a hard thing for anyone to carry out, but that was
the intent of the founding fathers. Mr. Brown's recent fortunes may be a prelude
as to what awaits those who think for themselves in Washington in the next few
months. And we could start to get some hints about the fate of the health care
debate by Friday when all the handicapping is over and the real deal has taken
place.
It seems that no matter what, you can't fool all of the people all of the time.
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How One Bank Beat The Odds And Made Money From "Toxic" Assets
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When Making Money The Old Fashioned Way Doesn't Mean They Stole It
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In a perverse and ironic turn of events, a pool of toxic
assets has returned 72% on its original investments, raising the question of
whether if calmer heads had prevailed many of the bailouts engineered after
the subprime mortgage crisis were necessary.
According to The Wall Street Journal: 'Shares in a $5 billion pool of toxic assets
distributed as 2009 bonus pay for Credit Suisse Group investment bankers returned
72% last year, people familiar with the situation said. Known as the Partner
Asset Facility, the plan was originally billed as a way for Credit Suisse bankers
to "eat their own cooking."'
Yeah, you've got it right. This was supposed to be punishment for the so called
bad bankers who allegedly perpetrated fraudulent schemes on the unsuspecting
public. Yet, after a couple of years, the punishment has turned into a cash cow.
To be sure, there is no guarantee that this pool of assets will eventually remain
profitable. But, at least on paper, these guys are in pretty good shape.
As usual, the devil is in the details. And the details are a bit on the sobering
side. For one thing, the bankers can't sell any of their shares in this fund
for five years. On the flip side, though, the fund is doing well enough for them
to get some income, which is not a bad deal, at least as long as it lasts. So
what's in this fund? According to The Journal: "The pool is largely made up of
commercial mortgage-backed securities and leveraged-loan products Credit Suisse
sought to offload in late 2008 as it scaled back its own risk-taking. The fund
assets originally included debt of a Japanese shopping center, a mining company
and a U.S. supermarket chain."
But here's what makes this interesting. As The Journal points out "When the fund
was unveiled in January, 2009 Credit Suisse bankers groused about the plan, fearing
the securities would register few gains. Some bankers argued that they hadn't
contributed to Credit Suisse's 2008 net loss. A number of them had hoped for
cash bonuses instead." Yet, things have turned out fairly well for these guys
as "Credit Suisse's timing now appears impeccable. The fund's 72% increase for
2009 compares with a 23.5% rise in the Standard & Poor's 500-stock index
and an 18.8% gain in the Dow Jones Industrial Average. Credit Suisse shares rose
60% over 2009."
And perhaps, this is the take home message. Credit Suisse didn't take any government
bailout money. Instead they raised money privately and put this pool of assets
together for its bankers. Then, they have obviously managed it well enough to
make it a money maker.
In other words, a major financial institution took its chances and seems to have
had enough confidence and smarts to actually turn a very nasty situation and
make it profitable.
This, of course, is a story that was somewhere in the bowels of the Journal,
not in the front page. That's where all the stories about rising unemployment,
government deficits, and bad real estate are.
Conclusion
If there isn't any fine print in this story, especially stuff that will pop up
in a few years, it looks as if Credit Suisse actually made money the old fashioned
way, not by stealing it, but by taking prudent chances, managing risk, and standing
on their own two feet.
That's kind of novel and refreshing in this day and age where government bailouts
after bad decisions by executives, greedy consumers with unrealistic expectations,
dim witted politicians and so called Wall Street smart guys have led to a near
calamity to the global economy.
The lesson here is that investment is all about market timing and appropriate
risk taking. Sometimes you get it right, and sometimes you don't. Credit Suisse
got it right, at least so far.
The long term for this bank is much more promising than for many of its international
cohorts, who after creating wacky derivatives, didn't know what to do with them
when things went wrong, and went running to government piggy banks for salvation.
By the same token, fame and fortune can be fleeting. But at least Credit Suisse
can bask in a little bit of sunshine for now and investors should consider studying
this example and learning from it. In money management, a little bit of sunshine
can go a long way.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Market Moves - Stock Of The Day
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Apple Inc. (Nasdaq: AAPL) Shares Could Be On Verge Of Breakdown
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Shares of Apple
Inc. (Nasdaq: AAPL) are tracing a negative technical pattern
called a double top, and maybe a reverse head and shoulders.
Chart Courtesy of StockCharts.com
You can get bogged down in naming the pattern. And in the
end it doesn't really matter what you call it. A double
top means that the stock is failing to make a new high
on its second attempt to do so over a period of time. A
head and shoulders top means that a stock made a top, then
some time later it made a higher top, but now it's making
a lower top.
What's important is that the stock isn't going up. Instead, it's stalling. Or
at least it seemed to be stalling. Things could easily change, especially if
the market turns up in the next few days, if Apple joins any potential rally.
Here's what's important. Apple has been weak enough lately to have traced a negative
chart pattern. That means that more money is coming out of the stock than is
going into the stock. And that means that if you hold the stock, you need to
be paying attention to its activity at this point.
More important is what Apple does in respect to the market. If the overall market
starts to rally and makes a meaningful new high, and Apple doesn't keep up, there
is clearly a problem with the stock.
If it recovers well enough to keep up, then that would be a positive. The bottom
line is that Apple is not a market leader at this time. And that's different
than things were a few months ago.
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