The Debts of the Spenders: Short Sellers Return to Banks

Are there still any shorts left after a nearly 2 month long stock market rally?

Yes. Apparently.

Shorts are getting positioned for the upcoming preferred to common stock dilution. The effect is to increase their tangible common equity or TCE which is both a regulatory and analytical measure of how well capitalized these banks are.

Even though this data is 2 weeks old (short squeeze or short float info is released bi-weekly), it is still relevant for pointing out the facts that the markets remains very overbought - from a lot of bearish covering not bullish optimism.

An alternate analysis is to examine the currency and bond movements which are forecasting a greater return to risk. As for grains, which I have been covering a bit in the past few weeks, they are overshadowed by wider movements in equities and forex.

Source: http://www.bloomberg.com/apps/news?
pid=20601109&sid=aAbmnwDjaZ1s&refer=home

The financial yardstick strips out intangible assets, goodwill -- the premium above net assets paid for acquisitions -- and preferred stock, including shares issued to the U.S. Treasury.

Regulators want TCE to equal about 4 percent of assets, up from an earlier target of 3 percent, people with knowledge of the situation said last week. Seven of the banks under review have ratios of less than 4 percent, company reports show.

“Banks are going to need more capital,” Jacoby said. “Treasury doesn’t care about dilution. All they care about is financial mass and loss-absorption ability to offset what could be more nonperforming loans and writedowns in the future.”

***************************************************************************The The increase in short selling occurred as the S&P 500 Financials Index posted its best two months since 1989, when Standard & Poor’s started keeping records. The 80-member index has surged 41 percent since Feb. 27.

Stephen Wood, who helps manage $151 billion as senior strategist at Russell Investments in New York, said the stress tests will narrow the breadth of the rally.

“It will end up resulting in a differentiation of the shares,” Wood said. “It will be a vicious cycle for the companies that are not doing well. The share price will go down in anticipation of dilution with the issuance of new shares.”

The Debts of the Spenders: Trimtabs CEO Still Bearish on Equities

Trimtabs is a multi-billion dollar company that monitors and analyzes institutional money market flow as seen through the eyes of mutual fund portfolios. Charles Biderman, CEO, has reason to believe it is better to remain bearish. His analysis is based on sound reasoning of the fundamentals and astute observations of an increase in insider selling among corporations:

WATCH OUT FOR A VALUE TRAP From Charles Biderman, chief executive officer, TrimTabs Investment Research

Companies and corporate insiders have not joined the party on Wall Street. Since March 9, the float of shares in the U.S. stock market has increased $14.1 billion. In April, corporate insiders sold $2.1 billion, 14 times more than the $150 million they purchased.

Retail investors have shown some enthusiasm for U.S. stocks. U.S. equity funds posted inflows in each of the past five weeks totaling $12.4 billion. But even if retail investors pumped $12.4 billion into U.S. equities directly in the past five weeks in addition to the $12.4 billion they added to U.S. equity funds, their buying would not have been enough to drive stock prices up so much.

Since corporate America has been a net seller and retail investors have been moderate net buyers, institutional investors must have provided most of the fuel for the rally. The latest Barron’s Big Money Poll suggests institutional players have turned very upbeat. A whopping 59% of respondents describe themselves as bullish or very bullish, while only 13% of respondents describe themselves as bearish.

Institutional players apparently believe they are catching the bottom of the economy and the stock market. The problem is that consumer spendables will drop an estimated $55 billion in May 2009 relative to May 2008. The decline will be so severe due mostly to the impact of tax credits. While the “Bush” tax credit distributed $48 billion in May 2008, we estimate that the “Obama” tax credit will distribute only $7 billion in May 2009.

To add to this cheery picture, incomes of all types are plummeting. ncome tax withholdings dropped an adjusted 6.1% y-o-y in the past three weeks and four days, which is consistent with monthly job losses of at least 550,000, and non-wage income and corporate income are in a free fall. The latest data on chain-store sales, automobile sales, and savings flows all suggest that the economy’s green shoots are already dying. When portfolio managers realize that the economy is sinking, the tape will turn very ugly.

Source:

http://www.financial-planning.com/news/
looking-ahead-financial-planning-may-4-2661824-1.html?
ET=financialplanning:e315:1878817a:&st=email

The Debts of the Spenders: Dollar Bears Return

Another great post by Ms. Lien. She includes the Commitment of Traders (COT) analysis (which I discussed on a related segment about grains) that shows dollar bears are returning:

The most recent IMM Commitment of Traders report shows that USD longs were cut back substantially. This suggests that traders are starting to turn dollar bearish which is in line with the recent improvements in risk appetite.

Source: http://www.kathylien.com/site/uncategorized/
dollar-longs-cut-back-substantially#more-2490

The Debts of the Lenders: Brazilian Soy Production Revised Downwards

Potentiall more upwards pressure for soybean bulls. Focus on the last paragraph. Please keep in mind that Brazil is #2 behind soybean production after the US. It's a minor decrease but any supply pressure can be taken as bullish.

DJ Brazil Southern States To End Soy Harvest This Week -Agrural

SAO PAULO (Dow Jones)--Brazil's southern states of Parana and Rio Grande do Sul should complete their soy harvest this week, Eduardo Godoi, an analyst at consulting firm Agrural said Monday.

Parana, the No. 2 soy producing state, harvested 98% of its beans as of April 30, while Rio Grande do Sul harvested 89% of its crop, Godoi said.

The soy harvest in Rio Grande do Sul - traditionally the last to start - has been helped by the dry weather in March and April, Godoi told Dow Jones Newswires.

Brazil's total soy harvest was 92% complete as of April 30 compared to 87% the week before and 89% in the same period of 2008, according to Agrural.

Mato Grosso - the No. 1 soy producing state - Mato Grosso do Sul and Sao Paulo states have already finished their soy harvests. Most of the soy crop progressed well last week except in the northeast, which was lashed by rain, keeping the farmers out of the fields.

Brazil's Soy Production

Godoi said Agrural's earlier 2008-09 soy crop estimate is likely to be revised downward this week from 58.3 million metric tons. Brazil's expected production should be lowered due to a smaller crop in Rio Grande do Sul state, he said.

Although the hot, dry weather in March and April helped the harvest, it also dried out the beans leading to less volume. As a result, Rio Grande do Sul state is unlikely to reach Agrural's previous forecast of 8.6 million tons this year, he said.

The Debts of the Spenders: The Coming Student Loan Storm

May and June graduation dates are around the corner.

In today's deflationary recession it is no surprise that those w/o jobs or high sources of income are the first to suffer. And nowhere is that truth more encapsulated than in the ranks of American students. For govt counting purposes, new graduates are NOT considered unemployed.

There are many web sites that cover the consumer angle of student loans. But few that are dedicated to the other side.

Here is a web site I discovered that covers the student loan analytics from the LENDING perspective:

http://studentlendinganalytics.typepad.com/
student_lending_analytics/

The Debts of the Spenders: Argentina Soy Conditions Deteriorate

Potential supply destruction spells good news for bulls. Traders have a right to be skeptical of Argentine farm data - the govt has been accused of manipulating and delaying data releases. Unlike the US where traders take such actions for granted, both Argentine farmers and speculators openly revolted earlier this year w/strikes and media condemnation of the statistics.

But official reports are still examined closely. And the government has promised to clean up its reporting. Recent reports seem to corroborate independent analysis that the situation on the ground is much worse than expected.

Argentina Soy Conditions Vary; Some Early Frost Damage-Ag Secy

With over half of the soy harvest complete, conditions vary widely with drought
damage in much of the early soy and late soy in some areas suffering from early
frosts, the Agriculture Secretariat said in its weekly crop report Wednesday.

As of April 23, 66% of the 2008-09 soy crop had been harvested, up 11 percentage
points from the same date last year.

In the Lincoln district of Buenos Aires province, most of the early soy has been
harvested, but the late crop has been affected by the first frost, with increased leaf
losses, the Secretariat said.

Earlier Wednesday, the Buenos Aires Cereals Exchange slashed its forecast for
2008-09 soy production by almost three million metric tons, pegging output at just
34 million tons.

The Secretariat has forecast production at 37 million to 39 million tons, but
revoked that forecast last month due to what it called “errors.”

As of April 23, 65% of the 2008-09 corn crop had been harvested, up 16 percentage
points from this point last season.

However, the crop is in poor shape due to drought damage. The Secretariat forecasts
final production at 12.5 million to 13.8 million tons, the smallest crop in over
five years.

In the Bragado district of Buenos Aires province, the harvest is progressing
rapidly, without problems securing storage or harvesters “mainly due the yields
coming in well under the average of recent seasons,” the Secretariat said.

In the important corn-growing province of Cordoba, about 90% of the crop has
been harvested, with yields continuing to be poor due to the drought damage. Final
yields in the province are expected to average 6.5 to 7 tons per hectare, the
Secretariat said.

Source: CME Commodity News for Tomorrow 4/30/09

The Debts of the Spenders: UK Pension Funds to Enter Housing Mkt

LONDON, April 30 (Reuters) - Pension funds and other large investors could invest heavily in the beleaguered housing sector in the UK because of a plan encouraging the funding of new homes, a property lobby group said on Friday.

The government-backed Homes and Communities Agency's Private Rented Sector Initiative (PRSI), launched on Friday, is aimed at encouraging institutional investors to fund new homes specifically for private rent.

The British Property Federation (BPF) said the initiative will allow investors such as pension funds to enter the private rented sector on a large scale for the first time.

Source:

http://www.reuters.com/article/
rbssFinancialServicesAndRealEstateNews/idUSLU62967920090430