VP Biden on Stimulus Package

Interview January 29,2009 on CNBC

Interview with John Harwood on CNBC on January 29.

Talking about the stimulus package.

Biden: It’s not over yet. We’ve only gone through the first phase of this. That is, it’s passed the House, which is a big, big step. It’s about to pass in the Senate and we’re going to go to conference. And I’m sure there’s going to be some additional changes in this.

Harwood: What kind?

Biden: Well, my guess is you’re going to see maybe some additional infrastructure spending. You may see some changes in some of the things that have been put forward by the House in terms of spending, and maybe even some changes on the tax side. But, look…

Harwood: More tax cuts then?

Biden: Well, I don’t… that may occur. But here’s where we are. You have as, for a city that did not function for eight years, in terms of any kind of bipartisan consensus, any kind of real coordination, here we are, God, we’re willing, with less than, you know, 20 days into the first session, of passing the most significant stimulus package in the history of the United States of America. That is, and it’s going to spend out 75% of it quickly; ah, does it spend out every way we want to? I mean, for example, you have a circumstance where, you want to make sure you don’t create as they say a tail. You don’t want to start a spending program that locks you into long, long term spending. And the other side of it is, you’d also like to be able to, if you could write it as if, you know, there was no Congress, you could just write it yourself, you would like to have significant reforms built into this as well.

Could it be better? When you have two branches of Government and three separate entities working on something, I’m not sure that it could have gotten, at this stage, much better than this. I think it’s good. I think you’ll see it get better. And I think you’ll also see Republicans voting for it.

Nasdaq Composite Elliot Wave Pattern Updated January 30, 2009

Currently the Nasdaq is in a Wave 4 counter-trend rally within the context of a larger 5 wave down pattern. I am expecting this Wave 4 to to subdivide into an A-B-C-D-E triangle, of which we are currently in the wave B portion. Within Wave B of 4, I'm looking for support in the Nasdaq Comp in the 1400 area, (from Jan 30 close at 1,477.29) before the Wave C rally begins.

Why am I looking for a triangle 4th wave?
1) Wave 2, ending 05/19/08, was a relatively short counter-trend rally of 42 trading days. By rule of alternation, I would expect Wave 4 to be of significantly longer duration. Triangles are elogated trading patterns.
2) Per basic Elliot wave, triangles occur in the 4th wave position. Triangles allow for the fundamentals of the market to "catch up" with the market itself. In this case, it allows for the release of extraordinarily dismal economic news to be released into the market, news which the market was discounting back in November 2008.

• I am more interested in monitoring the shape and duration of the 4th wave triangle than I am interested in trying to trade this market and call turning points. I have not interest trying to trade a 4th wave triangle, until it is clear that we are in Wave E, at that point, it would be a relatively decent time to play the downside in the market (however one is so inclined) from a risk reward perspective.

The breakout from Wave 4 will clearly be down. The decline should be relatively swift, approximating Wave 1 (which was 94 trading day and was a decline of 24.8%, see chart).

Assuming at this point that the gyrations of the A-B-C-D-E 4th wave triangle has the Nasdaq Comp ending wave E, hence the end of Wave 4, in roughly the 1500 area on the Nasdaq Comp, a 25% decline would target 1,125 on the Nasdaq Comp.

Having thrown out an 1,1125 target on the Nasdaq Comp, keep in mind that it is
extremely important to monitor the shape of the decline, rather than the actual
price levels. Let me be blunt, 1,125 is nothing more than a guess at this point.
The form of the wave, how it unfolds in terms of wave counts, takes precedence
over price levels.

For initial entries, create a strategy with an overemphasis on risk management.

An important nuance: Currently it is important to emphasize selling into strength. With the end of Wave 5 down, that emphasis will shift to buying on weakness. Keep that in mind.

As Wave 5 own unfolds, we should see extreme levels of negative sentiment, whether that is reflected in investor surveys, put/call ratios, you name it. But at the same time, the momentum numbers should indicate much less downside momentum vis-a-vis Wave 3, which ended on November 21, 2008. The public's mood will be more pessimistic, but the intensity of the downside momentum will be lessoning in Wave 5.

Given the level of negative investment sentiment that we expect, combine with our overall outlook that the upcoming breakdown is the first major buying in the last 17-18 months (depends on when Wave 5 ends), a reasonable strategy, in our view, would be creating a list of stocks that you like ahead of time, we tend to like infrastructure plays like CAT that pay a nice dividend, and sell the puts naked, thus collecting the premium and reducing your cost basis.

U.S. Existing Home Sales Rose Last Month

U.S. Existing Home Sales Rose Last Month

From: http://www.haver.com/

• Could the decline in home sales be stabilizing, perhaps due to lower prices? According to the National Association of Realtors, sales of existing homes rose 6.5% last month to 4.740M. The 9.4% November decline was slightly deeper than reported initially. Consensus expectations had been for sales of 4.40M homes. Total sales include sales of condos and co-ops.
• Median home prices fell yet again during December. The 2.7% (NSA) decline followed a 3.3% November drop that was slightly deeper than initially reported. It was the sixth consecutive monthly drop and it lowered prices by 15.3% from December of 2007. Prices have fallen 23.4% since their peak in June 2007.
• The number of unsold homes (condos & single-family) on the market dropped a sharp 11.7% (-7.5% y/y). At the current sales rate there was a 9.3 months' supply on the market which was the lowest since early during 2007. For single-family homes the inventory fell m/m to an 8.7 months supply at the current sales rate which also was the lowest since 2007.
  · Last month, sales of existing single-family homes recovered nearly all of the November decline with a 7.0% increase. Nevertheless, sales of existing homes remained down by nearly one-third from their peak in mid-2005.

· By region, home sales in the West posted the strongest gain in December with a 13.6% rise. This gain recouped all of the declines during the prior two months and returned sales to the upward trend line that has been in place since the low in October of 2007. Sales in the South also gained 7.4% versus November but that level was the series' low for this cycle. Sales in the Midwest also rose by 4.0%. That too was off the series' low. Sales in the Northeast fell 1.4% after a huge 12.0% November drop. Single family home sales here were at their lowest since 1992.

Protectionism On The Horizon Worries Markets

The Winds Of Protectionism - Backlash from the Tim Geithner Swipe At China

Trader Talk with Art Cashin on the floor of the NYSE

Interview with Caterpillar CEO Jim Owens

Maiden Lane Holdings

I thought it would be interesting to follow the Fed's holdings of Maiden Lane Holdings, LLC.

In Millions
Net Portfolio Holdings Maiden Lane I: $27,181
Net Portfolio Holdings Maiden Lane II: $19,813
Net Portfolio Holdings Maiden Lane III: $26,967
Total Net Portfolio Holdings: $73,961

What is Maiden Lane Holdings?

From Wikipedia:
http://en.wikipedia.org/wiki/Maiden_Lane_LLC

Maiden Lane LLC is the first holding company bearing the name that was created when JPMorgan Chase took over Bear Stearns in early 2008. It holds an asset portfolio that JPMorgan found too risky to assume in whole, and consequently the Federal Reserve Bank of New York extended a $30 billion credit line to the limited liability company to facilitate the unwinding of these assets over time. Blooomberg, citing Bank of America analysts, reported on October 2, 2008, that the Federal Reserve might stand to lose $2 to $6 billion on the asset porfolio. A November 06, 2008, update by the Federal Reserve showed that the fair value of the assets was at $26.8 billion[1], meaning a book loss of $2 billion for the Federal Reserve.[2]

The Maiden Lane name has been used for a series of bailouts and is currently at Maiden Lane III

Note: On June 26, 2008, the Federal Reserve Bank of New York (FRBNY) extended credit to Maiden Lane LLC under the authority of section 13(3) of the Federal Reserve Act. This limited liability company was formed to acquire certain assets of Bear Stearns and to manage those assets through time to maximize repayment of the credit extended and to minimize disruption to financial markets. Payments by Maiden Lane LLC from the proceeds of the net portfolio holdings will be made in the following order: operating expenses of the LLC, principal due to the FRBNY, interest due to the FRBNY, principal due to JPMorgan Chase & Co., and interest due to JPMorgan Chase & Co. Any remaining funds will be paid to the FRBNY.

Note: On December 12, 2008, the Federal Reserve Bank of New York (FRBNY) began extending credit to Maiden Lane II LLC under the authority of section 13(3) of the Federal Reserve Act. This limited liability company was formed to purchase residential mortgage-backed securities from the U.S. securities lending reinvestment portfolio of subsidiaries of American International Group, Inc. (AIG subsidiaries). Payments by Maiden Lane II LLC from the proceeds of the net portfolio holdings will be made in the following order: operating expenses of Maiden Lane II LLC, principal due to the FRBNY, interest due to the FRBNY, and deferred payment
and interest due to AIG subsidiaries. Any remaining funds will be shared by the FRBNY and AIG subsidiaries.

Note: On November 25, 2008, the Federal Reserve Bank of New York (FRBNY) began extending credit to Maiden Lane III LLC under the authority of section 13(3) of the Federal Reserve Act. This limited liability company was formed to purchase multi-sector collateralized debt obligations (CDOs) on which the Financial Products group of American International Group, Inc. (AIG) has written credit default swap (CDS) contracts. In connection with the purchase of CDOs, the CDS counterparties will concurrently unwind the related CDS transactions. Payments by Maiden Lane III LLC from the proceeds of the net portfolio holdings will be made in the following order: operating expenses of Maiden Lane III LLC, principal due to the FRBNY, interest due to the FRBNY, principal due to AIG, and interest due to AIG. Any remaining funds will be shared by the FRBNY and AIG.

Now an update from the Federal Reserve, as of January 21, 2009:
http://www.federalreserve.gov/releases/h41/Current/

3. Information on Principal Accounts of Maiden Lane LLC
Millions of dollars
Wednesday
Account name Jan 21, 2009

Net portfolio holdings
of Maiden Lane LLC (1) 27,181

Outstanding principal amount
of loan extended by the
Federal Reserve Bank of New York (2) 28,820

Accrued interest payable to the
Federal Reserve Bank of New York (2) 276

Outstanding principal amount and
accrued interest on loan payable
to JPMorgan Chase & Co. (3) 1,191

1. Fair value. Fair value reflects an estimate of the price that would be received upon selling an asset if the transaction were to be conducted in an orderly market on the measurement date. Revalued quarterly. This table reflects valuations as of September 30, 2008. Any assets purchased after this valuation date are initially recorded at cost until their estimated fair value as of the purchase date becomes available.

2. Book value. This amount was eliminated when preparing the Federal Reserve Bank of New York's statement of condition consistent with consolidation under generally accepted accounting principles. Refer to the note on consolidation accompanying table 9.

3. Book value.The fair value of these obligations is included in other liabilities and capital in table 1 and in other liabilities and accrued dividends in table 8 and table 9.

Net portfolio holdings
of Maiden Lane II LLC (1) 19,813

Outstanding principal amount
of loan extended by the
Federal Reserve Bank of New York (2)19,169

Accrued interest payable to the
Federal Reserve Bank of New York (2) 44

Deferred payment and accrued interest payable
to subsidiaries of
American International Group, Inc. (3) 1,005

5. Information on Principal Accounts of Maiden Lane III LLC
Millions of dollars
Wednesday
Account name Jan 21, 2009

Net portfolio holdings of
Maiden Lane III LLC (1) 26,967

Outstanding principal amount of loan extended
by the Federal Reserve Bank of New York (2) 24,339

Accrued interest payable
to the Federal Reserve Bank of New York (2) 66

Outstanding principal amount
and accrued interest on loan payable to
American International Group, Inc. (3) 5,032

Pacman Jones

Not a mortgage related story, or even a financial story. But a pretty damning story from ESPN's Outside The Lines on Adam "Pacman" Jones, and his involvement with a notorious Atlanta gang leader and Jones' involvement in a shooting down the street from an Atlanta strip club, four months after his involvement in a similar incident in Las Vegas.

First, the Outside The Lines segment:



Next, the denial: