Archive for July, 2008 Page 2 of 6
July 29, 2008 6:01AM
By Alexis Glick
Yesterday on Money for Breakfast, Paul Atkins, one of the commissioners of the SEC, whose tenure expires this Friday, joined me to discuss the SEC’s temporary naked short sale progress. By my measure, since the day that the SEC announced the emergency rule change on Tuesday July 15th, the SEC has seen its plan manifest itself in a big move to the upside in the stocks that were given access to the discount window. Take a look at the percentage gains on some of the names on the list since it was announced. Note I did the math the old-fashioned way: on a piece of paper. Hopefully my second grade math is decent. What would we do without calculators?
FNM up almost 65%
FRE up almost 60%
LEH up almost 30%
BAC up almost 60%
C up almost 30%
JPM up almost 27%
Dow in that same period rose from 10,962 to 11,370 or roughly 3%
WM up 23 cents according to Friday’s close or 6% (Not covered under the rule)
WB up almost 60% (Not covered under the rule)
There you have it. Now as you and I both know there are a lot more names on the list and almost all of them have fared very well. I didn’t list performance based on when the rules went into effect because once it was announced the short covering started. Also of note is that some of these companies reported in the past couple of weeks and pure fundamentals have clearly played a role in their performance. Also check out Wachovia Bank which was not on the list but has fared better than one might have expected. Will the SEC take into account the performance of financial institutions not on the list to see if the temporary change needs to be extended to all banks or financial institutions? Absolutely! The decision to extend the naked short selling rule will be decided this evening.
For whether this rule should extend beyond these nineteen institutions or whether short sales should be reported and disclosed, take a look at the Commissioner’s response.
In the second part of my discussion about the SEC’s progress, Overstock.com CEO Patrick Byrne joined me to discuss what he likes and dislikes about the temporary rule changes. If you don’t know him or haven’t seen him interviewed, he has been a big proponent of change at the SEC and DTCC. His number one concern has been the lack of transparency at the DTCC (Depository Trust & Clearing Corporation) and the increase in the failures-to-deliver or FTD’s, as they’re commonly referred to. He notes that the number of FTD’s has increased precipitously and that no one is policing them. That suggests that naked short sellers have been running amuck with no supervision and that no one has been clamping down on the borrowers or institutions that facilitate that borrowing, to deliver stock or get a locate. In essence, people can do phantom trading above the float of the stock. Look at the email that he sent me before our interview.
I employ a team of economists and database managers outside of Overstock to research the issue of Failures-To-Deliver (FTD’s). Over the last two years we have spent countless hours on FOIA requests regarding FTD’s. In recent months, some of the information we seek has been coming out automatically, but one quarter stale.
In any case, this is what DTCC CNS fails look like up to the end of Q1:
| date_of_max_value |
|
max_daily_fails |
|
Year |
avg_daily_fails |
|
| 21-Dec-04 |
|
$6,560,323,778 |
|
2004 |
$3,418,010,542 |
|
| 21-Jun-05 |
|
$8,439,723,063 |
|
2005 |
$3,076,423,490 |
|
| 31-Jan-06 |
|
$12,425,109,643 |
|
2006 |
$3,473,665,714 |
|
| 27-Jun-07 |
|
$19,477,102,119 |
|
2007 |
$6,650,684,997 |
|
| 26-Mar-08 |
* |
$13,924,518,389 |
|
Q1 2008 |
$7,567,755,627 |
|
* denotes date through March 31
Take-aways:
1)So there was a day this year in Q1 when FTD’s almost reached $14 billion (they ended Q1 at $8.5 billion).
2) And the average daily FTD’s has just climbed and climbed for the last few years.
Some other talking points:
1) More shocking yet (and I can send the back-up data on this) is that on an average day, 72% of the FTD’s are in stocks that are on the Reg SHO list. Some protection.
2) How bad a problem is this?
a.You understand that $1 million of toxic waste does not cost $1 million to clean up: it may cost much more. Similarly, a broker holding a 10 million share FTD in a $1 stock may carry it as a $10 million liability, but if he has to clean up his fail, and buy-in 10 million shares in a stock trading 50,000 shares/day… it may cost him $10 million, but it could just as easily cost $100 million.
b. Put that together with the $8.5 billion number above. Cleaning it up will not cost $8.5 billion. It could cost $18.5 billion, or $80 billion… No one has any idea.
c. The CNS failures are just one part of the equation. There is also broker-level “pre-netting”, fails resolved by the DTCC Stock Borrow Program, ex-clearing, and failures coming in from off-shore clearing systems. Everybody who will talk from within the system says that collectively, these are a far bigger (the estimates from within the system are $30 - $190 billion, depending upon who is speaking).
Patrick Byrne has been talking about naked short selling for years and is not opposed to short selling as a whole but feels that his company and others have been unfairly penalized.
July 25, 2008 2:48PM
By Alexis Glick
On Money for Breakfast this morning I talked to Democratic Congressman Lampson of Texas, the author of a bill that was defeated in the House yesterday to tap into the strategic petroleum reserve and replace the barrels removed with new barrels of cheaper, harder to refine oil. Improving the technology or modernizing the spr’s technology to refine the heavier crude in any easier and more costly way is a concept that has been in the works for scientific purposes. A call to get the Strategic Petroleum Reserve to modernize the technology to refine heavier versus light crude.
The bill failed, but the discussion about releasing oil from the SPR is a hot one and the president thus far has declined. As you’ll see in the interview it has been released on three prior occasions and had meaningful results. The question now is if this is an emergency and if it will have the desired impact. Can we help curtail the rise in oil prices or is the bigger global demand story more important than any one move the U.S. government can make?
Take a look and note this is a Democrat who believes we should drill offshore.
July 25, 2008 1:42PM
By Alexis Glick
On The Opening Bell this morning Robert Albertson, the chief strategist at Sandler O’Neill joined me. We talked about the state of the financials and he raised some great points about the problems with mark-to-market accounting, a FASB rule. He noted that the accounting rules which make banks mark their assets to a market price is not fair or accurate, particularly given this climate. He also, more importantly, notes that mark-to-market accounting is depleting capital at the worst possible time for banks and that it flies in the face of reason or reality given what is happening with the banking system. When I asked him whether he thought regulators and FASB were doing it to create more transparency given the writedowns, he said nonsense, the banks are very transparent.
Now, not everyone would agree or believe that. As you may recall, Jamie Dimon, the chairman and CEO of JPMorgan, discussed the accounting rule on his conference call last week. Dimon doesn’t do anything subtly. If you know and listen to him, he has a method to his madness and when he wants something changed, he makes it clear. On his conference call last week he said that mark-to-market accounting is not conducive to a deal environment or would present problems/issues for him to do a deal.
I don’t have the exact quote but that was close.
Dimon is a very bright guy. He was telling the Fed, Treasury, FASB, the SEC and the FDIC, if you want me to buy or perhaps rescue another bank or broker dealer, then you better reconsider these FASB mark-to-market rules because they don’t work and they make my life miserable. What will happen? Time will tell but Robert Sandler is on to something. When bad things happen, regulators clamp down for obvious reasons but some of that clamping down in this case, could be to the detriment of the people who need the flexibility the most to stay afloat, raise capital and get deals done. A good story to keep any eye on.
Did I sound like my pal Liz MacDonald? She’s much better at this than me! I am becoming an accounting nerd and I know much too little about it. Am I starting to put you guys to sleep? I’m sorry! I’m just getting so fired up about this regulatory environment and how all of these problems will get fixed. So much is going to change because of the past year. Some great things, some not so great. This is an incredible time to see the changes occur because they will have lasting effects. I just want them to have positive lasting effects.
July 25, 2008 1:17PM
By Alexis Glick
This morning’s foreclosure data was disappointing to say the least. Once again we’re making new records with foreclosure filings rising to all-time highs.
Right now the inventory of unsold homes is the highest in history or since the data was collected. This morning Jonathan Miller, Doug Pope and Mark Sunshine joined me to discuss the Housing Bill expected to become law this weekend and the future of foreclosure filings.
The reason the segment was so interesting was because Doug Pope, the co-founder of Hotpads.com, joined us to discuss how his site through map based search, tells you which towns, cities or states where homes are for rent or being foreclosed. It is such a cool website. You have to check it out. Here’s the link. Take a look at our segment this morning and what he says about the uptick in people looking to buy foreclosed homes.
July 24, 2008 2:19PM
By Alexis Glick
On The Opening Bell today I talked to Bob Greifeld, the NASDAQ OMX CEO, about the acquisition of the Philadelphia Stock Exchange. They have been on a big consolidation binge here in the U.S. and overseas and for the first time in history on Friday traded more NYSE (New York Stock Exchange) listed stocks on the Nasdaq then on the big board (otherwise known as the NYSE).
That’s a huge deal for them. We also talked about the pending SEC short-term emergency naked short sale rules and whether the rule should go into affect for all stocks as opposed to the nineteen. He said it should and that this was the SEC’s first step toward making this pilot program more universal. Take a look.
July 24, 2008 2:16PM
By Alexis Glick
This morning I made my first appearance on the Don Imus radio show called Imus in the Morning on WABC 770AM here in New York. As you’re well aware he’s on a ton of other ABC stations across the country and his show is simulcast on RFD-TV.
My parents have been fans of his show for years, as well as many of their friends. It was a lot of fun to talk to him about everything from the economy, to basketball to family. He makes it look so easy. Recently I have had the opportunity to appear on O’Reilly’s Radio Show a couple of times and I have to admit this radio thing is awesome. In the TV business you have to get all dolled up and that’s so not me. The minute I get off air the layers of makeup and hairspray come off and I’m back in my sweats or jeans. I’m incredibly casual and I can see how this radio world is so inviting.
Today we talked about the latest news on XM Satellite and Sirius’s merger. It looks like they’ll officially be headed toward a merger. We invited on Tom Watts, an analyst and managing director of Satellite Research and Michael Harrison, the publisher of Talkers Magazine to discuss the merits of the deal, winners and losers for both consumers and shareholders and how the industry is changing. We had a great conversation about the future of radio, satellite and the Internet. Take a look.
July 24, 2008 12:50PM
By Alexis Glick
This week’s market maven was Liz Ann Sonders, the Chief Investment Strategist with Charles Schwab. She’s a terrific guest and always has such sound advice about what to do in any environment like this.
She recently wrote a great piece called “A New Paradigm Ahead” where she listed all of the economic problems facing this country and then went on to talk about how this “new paradigm” could have positive implications for both the U.S. Economy and stocks. It’s a great report. It’s in the May monthly Schwab Investing Insights report.
