Keeping Tabs On $700 Billion Of TARP

Check out the below informative New York Times link Tracking the $700 Billion worth of funds being ALLOCATED by the U.S. Treasury Department via its controversial Troubled Asset Relief Program (TARP) :

nytimes.com/creditcrisis/recipients/table


* Top 10 Banking TARP Customers :
1. Citigroup (C) - $45 Billion (marketcap = $45 Billion)
2. AIG (AIG) - $40 Billion (mcap = $5B)
3. JPMorgan Chase (JPM) - $25 Billion (mcap = $118B)
4. Wells Fargo (WFC) - $25 Billion (mcap = $96B)
5. Bank Of America (BAC) - $15 Billion (mcap = $82B)
6. Goldman Sachs (GS) - $10 Billion (mcap = $31B)
7. Merrill Lynch (MER) - $10 Billion (mcap = $21B)
8. Morgan Stanley (MS) - $10 Billion (mcap = $16B)
9. PNC (PNC) - $7.7 Billion (mcap = $18B)
10. U.S. Bancorp (USB) - $6.6 Billion (mcap = $47B)


* Top 10 customers account for almost 30% (28% or $195 Billion) of total TARP funds...Citigroup and AIG alone account for over 12% of total TARP spending


* About $410 Billion in total TARP funds remain UNALLOCATED (approx 60%)


Data Courtesy: NY Times
Full Disclosure: I own shares of GS.

Wall Street's 2003-07 Housing BOOM Exces$

During the 5 year U.S. Housing 'BOOM' from 2003 to 2007, Wall Street's 5 Largest firms (Goldman Sachs, Morgan Stanley, Merrill Lynch, Bear Sterns and Lehman Brothers) paid their Top 5 Executives a total of more than $3 Billion in compensation!


Three BILLION dollars is of course a stunning amount of money in ANY context but especially so when considering the rather DIRE solvency/financial challenges these same firms have faced over the course of the past 6 months...NAMELY:

* Bear Sterns (the artist formerly known as BSC) was forced into bankruptcy in March

* Lehman Brothers (the artist formerly known as LEH) was forced to declare bankruptcy in September

* Merrill Lynch (MER), in order to avoid being forced into bankruptcy, was forced to sell itself to Bank of America (BAC) in September

* OH yeah, don't forget about that little $700 BILLION Wall Street 'Bailout/Rescue Plan' that was just approved by Congress this weekend !

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According to the informative Bloomberg article linked below:

* The 5 Wall Street firms had combined Net Income (profits) of $93 Billion during the five years through 2007

* Of the $3.1 Billion paid to the top five executives at the firms between 2003 and 2007, Goldman Sachs (GS) paid the highest total with $859 million, followed by Bear Stearns at $609 million...CEO pay at the five firms increased each year, doubling to $253 million in 2007, according to data compiled from company filings

* Merrill Lynch (MER) paid its chief executives the most, with former CEO Stanley O'Neal taking in $172 million from 2003 to 2007 and John Thain receiving $86 million, including a signing bonus, after beginning work in December 2007

* Bear Stearns CEO James Cayne made $161 million before the company collapsed in March and was sold to JPMorgan (JPM) with monetary backing provided by the U.S. Federal Reserve

* Hank Paulson, the current U.S. Treasury Secretary and former CEO of Goldman Sachs, made about $111 million from 2003-2006...current Goldman Chief Executive Officer Lloyd Blankfein received $57.6 million in 2007

* Morgan Stanley's (MS) current and former chief executives, John Mack and Philip Purcell, were paid about $194 million over the last five years.

* Lehman's Chief Executive Officer Richard Fuld made $165 million between 2003 and 2007

* Lastly, it should be noted that Excessive compensation was NOT limited to Wall Street's top executives as Wall Street firms have paid employees a greater share of revenue than any other industry, about 50%...The five Largest firms paid their 185,687 employees $66 Billion in 2007, including about $39 Billion in bonuses...That amounts to an average pay of $353,089 per employee, including an average bonus of $211,849.

bloomberg.com/apps/news?pid=20601109&sid=aGL5l6

Data Courtesy: Bloomberg

Full Disclosure: I own shares of GS.

Fitz On Housing + Wall $treet's Impact On NY

Per RealMoney.com contributor Dan Fitzpatrick, behold some somewhat obvious but nonetheless poignant words I believe are worth noting related to what's needed for a BOTTOM + Sustainable Recovery in U.S. Housing/Real Estate prices:

The Order of Economic Recovery

By Dan Fitzpatrick
9/19/08 11:30 AM EDT

"Just a quick note this morning. Those who are eagerly looking at the real estate market with optimism that the worst is over are looking the wrong way. Houses are the ultimate Big Ticket Item. They are generally not bought until the consumer feels confident in his earning capacity by way of a steady JOB with upside potential. We need an economic recovery BEFORE real estate moves higher...not the other way around. It has always been that way, and will always be that way. Not my opinion -- it is a fact."

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* Anecdotally thinking and speaking of real estate, one of the select FEW pockets of strength for the post-2005 U.S. real estate market was Manhattan, New York. This will most certainly NOT be the case moving forward for at least the next 5-10 years following the EPIC collapses of former WALL STREET giants Bear Sterns (the artist formerly known as BSC), Lehman Brothers (the artist formerly known as LEH), Merrill Lynch (MER...soon to become a piece of Bank of America/BAC), American Insurance Group (AIG...now 80% owned by the Federal Government), etc.

In attempting to quickly assess the potential Ramifications of a WOUNDED Wall Street to NEW YORK's economy (and therefore to New York's real estate market), it should be noted that per August 2008 comments from Thomas DiNapoli (the 'Comptroller of the State of New York'...also commonly referred to as the 'Chief Fiscal Officer of New York State') :

* Wall Street firms make up approximately 20% of New York STATE's total tax revenues

* Wall Street contributes about 9% of New York CITY's total tax revenues.


bloomberg.com/apps/news?pid=20601087&sid=aYhqIluVHh7U&refer=home


Data Courtesy: Realmoney.com (subscription only) + Bloomberg

RTOB: Six Reasons To BANK On Goldman

Six Fundamental LONG TERM Reasons to Own Goldman Sachs (GS) :


1.) The IN$IDE Boys :
Please refer to my 7/21/08 post titled 'Goldman Sachs - Inside Boys To The Rescue' for more information on this (use the ETB 'Archive Keyword Reference' on the right to search for this post using keyword 'Goldman Sachs'). Bottom line, GS is on the INSIDE...and EVERYONE else seems to be on the OUTSIDE.


2.) The UNSCATHED (What Credit Crisis ??) :
GS is one of the select FEW financial players that have, thus far, been relatively UNSCATHED by the ongoing U.S. Credit Crisis. Because of disciplined, proprietary RISK MANAGEMENT and execution Goldman has NOT had to take on significant 'write downs' on shoddy assets...UNLIKE the majority of global financial peers including: Lehman Brothers (LEH), Citigroup (C), Bank of America (BAC), Merrill Lynch (MER), Wachovia (WB), Wells Fargo (WFC), UBS, etc.


3.) ONCE In A Lifetime MARKETSHARE Opportunity :
Because Goldman has been relatively UNSCATHED by the recent Credit Crisis (see point #2 above), GS is in an IDEAL position of being able to use its assets MUCH more productively than its peers. Instead of having to use its assets and existing capital to internally 'patch holes'/shore up the soundness of its Balance Sheet, GS is able to use its capital more productively and actually take advantage of the market's current Asset 'Fire Sale' (kinda like a 'clearance' shopping event...just about all of GS's peers are unloading assets in a 'Everything must GO!' fashion) to GROW its business. The departure of Bear Sterns (BSC) ALONE is a great reason to own Goldman. Throw in the CARNAGE currently being suffered by competitors Lehman Brothers, Merrill Lynch, etc. and Goldman Sachs is in PRIME position to soak up some Attractive LONG TERM brokerage MarketShare (whether its in Asset Management, Equity/Bond Underwriting, Commodities Trading, Mergers and Acquisitions, etc.).


4.) The Massive Stock Buyback :
While most U.S. financials are scrambling to RAISE Capital (mostly by diluting the shares of stock owned by existing shareholders), Goldman is doing the exact opposite via BUYING BACK ITS OWN STOCK and returning Capital to its shareholders. Which financial would you rather own - An investment that is RETURNING you money vs. One that is DILUTING/reducing your money?! For the record and per my 6/22/08 post titled 'GS 2Q08 Earnings Recap', Goldman has 62 million shares remaining in its authorized share repurchase program...this represents about $9.5 Billion or 16% of the company's total FLOAT/shares outstanding.


5.) DEMONSTRATED Competence of Management :
The executive management team of Goldman Sachs is often referred to as 'the Smartest Guys in the Room'...regardless of WHO's in the room. With all due respect to Google (GOOG), Goldman is probably the smartest company in the WORLD. For validation's sake, look NO further than how GS has executed its brokerage business during arguably one of the country's most HISTORICALLY trying times for financial institutions. Save The 1990 U.S. Savings and Loans Crisis (fyi + for more info on this ERA you can refer to my 7/14/08 post titled 'The U.S. Savings and Loans Crisis'), most banks have never seen a market environment THIS difficult. For empirical evidence of GS's track record of execution during the ongoing Credit Crisis, please refer to the ETB 'Archive Keyword Reference' under 'Earnings' or 'Goldman Sachs'...in there you will find the details behind a couple of impressive, recent GS quarterly reports courtesy of my proprietOHRI GS quarterly 'Earning Recap' posts.


6.) The CHEAP, Single Digit P/E Multiple :
While 'cheap' is of course relative, it should be noted that Goldman Sachs is trading at just 7.5 x 2008's expected earnings. Goldman's Forward 2009 P/E is currently 10. Despite its EXECUTION BRILLIANCE as a company, GS as a stock has been taken down like the rest of its financial cohorts...the company's stock is currently Down 28% year to date (GS is down 13% year over year). Anecdotally saying, If you're looking to build a CORE investment position in GS then you gotta believe that 10 x 2009 Earnings (or $150/share) represents an attractive entry point.


Full Disclosure: I own shares of GS.

Will Cox Spread SEC Order To ALL ?

In testimony delivered today during a U.S. Financial Services Committee hearing in Washington, Securities and Exchange Commission Chairman Christopher Cox stated that he is interested in SPREADING recently imposed Short-Selling restrictions from a small group of 19 financial stocks to the ENTIRE stock market.

news/newsfeeds/articles/djf500/200807241703DOWJONESDJONLINE000879_FORTUNE

Quoted from the Above Link:
* The SEC issued an emergency order last week, which took effect Monday (7/21/08), to tighten requirements for short sales focused on 19 U.S. financial companies including Fannie Mae (FNM) and Freddie Mac (FRE), the federally sponsored housing-finance giants. In addition to the two Government Sponsored Enterprises (GSE's), the order included 17 Federal Reserve primary dealers in U.S. Treasury debt. FYI, for a list of The U.S. Fed's Primary Dealers please refer to my 3/16/08 post labelled 'REF - U.S. Fed Primary Dealers (Discount Rate)'.

* SEC Chairman Cox said the 19 stocks were originally targeted because they were institutions able to borrow from the Federal Reserve. But he said the SEC aims to extend "operational protections" marketwide.

* Short sellers sell borrowed shares which they hope to replace later at lower prices, profiting from stock price declines...The SEC has put restrictions in place in recent years to curb illegal "naked" short sales, in which stocks are NOT borrowed before short sales. That effort was extended with the emergency order which calls for borrowing or arranging to borrow shares in advance of short sales in the 19 targeted stocks.

* Cox told reporters after the hearing that the SEC staff also is discussing changes that would require disclosure of significant short positions, similar to requirements to divulge big long position in stocks.

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RTOB - When there's only TWO SIDES to the Stock Market (Up or Down...Long or Short...Bull or Bear...Black or Red), there's No way one can assert that increased SEC regulation imposed on one side will NOT benefit the other...Skipping the always lively ethics debate (Is the SEC overstepping its 'free market' bounds ?), I'd rather focus on the decision and what it represents. Besides being a psychological victory for those individuals 'long' stocks (and possibly a catalyst leading to another short-squeeze induced stock market rally), this event also marks the Beginning of a New ERA...An ERA that is governed by a much more active and vigilant Securities and Exchange Commission. Maybe I'm being too optimistic, but it seems like the 'New' SEC is More Willing THAN EVER to SWIFTLY Re-examine and Address stock market MANIPULATION. Regardless of your SIDE, score one for the Longer term Sustainability of the GAME.

Data Courtesy: CNN Money
Full Disclosure: I own shares of GS.

SUBPRIME Slime Check-Up

Since the beginning of 2007, the world's largest public banks and brokerages have RAISED about $331 Billion in new Capital following more than $447 Billion of Writedowns and Credit Losses tied to the collapse of the U.S. housing market.

Data Courtesy: Bloomberg.

BANK Stocks - Weapons of MA$$ Destruction

In order to to build some market perspective 6 months into 2008, I decided to do a 'Performance' Check on some of the Financial + Homebuilder stocks I follow.

BEHOLD the HORRID Year To Date (1/01/08 - 6/16/08) and year over year returns (...the graph to the left is courtesy of Societe Generale equity research + shows the marketcapitalization of the Financial sector as a proportion to the marketcap of the entire S+P 500 index...currently financials make up about 17% of the entire S+P 500):

Company (Ticker - Mcap): Year To Date Change, 1 Year Change

* Large U.S. Banks (Ticker...Marketcap): Returns
Bank of America (BAC - $135B): -27%, -39%
Bank of New York (BK - $48B): -14%, -6%
BB&T Corp. (BBT - $15B): -11%, -35%
Citigroup (C - $109B): -29%, -61%
Deutsche Bank AG (DB - $48B): -26%, -36%
JPMorgan (JPM - $137B): -9%, -21%
Northern Trust (NTRS - $16B): -7%, +9%
PNC Financial (PNC - $21B): -8%, -19%
Soverign Bancorp (SOV - $5B): -19%, -59%
Sun Trust Bank (STI - $16B): -29%, -51%
Wachovia (WB - $39B): -52%, -67%
Washington Mutual (WM - $7B): -50%, -84%
Wells Fargo (WFC - $87B): -13%, -27%
U.S. Bancorp (USB - $55B): -1%, -8%

* Brokers + Asset Managers:
AIG (AIG - $85B): -42%, -53%
Barclay's (BCS - $43B): -36%, -56%
Bear Sterns (formerly BSC): DEAD
Credit Suisse (CS - $49B): -20%, -35%
Goldman Sachs (GS - $72B): -15%, -20%
Jefferies Group (JEF - $3B): -16%, -31%
Legg Mason (LM - $8B): -26%, -46%
Lehman Brothers (LEH - $15B): -58%, -66%
Merrill Lynch (MER - $38B): -27%, -57%
Morgan Stanley (MS - $47B): -20%, -52%
Piper Jaffray (PJC - $0.75B): -12%, -34%
Raymond James (RJF - $4B): -5%, -5%
State Street (STT - $29B): -15%, -1%
UBS AG (UBS - $49B), -47%, -61%

* Stock Exchanges:
CME Group (CME - $23B): -39%, -24%
Intercontinental Exchange (ICE - $9B): -36%, -22%
NYSE Euronext (NYX - $16B): -32%, -25%
Nasdaq OMX Group (NDAQ - $7B): -33%, +4%
Nymex Holdings (NMX - $9B): -33%, -37%

* Other U.S. Financials:
Ambac Financial (ABK...$0.7B): -91%, -97%
Berkshire Hathaway (BRKA...$195B): -11%, +15%
Charles Schwab (SCHW...$26B): -11%, +5%
Countrywide Financial (CFC...$3B): -44%, -87%
Downey Financial (DSL...$0.125B): -84%, -93%
E Trade Financial (ETFC...$2B): +7%, -84%
Fannie Mae (FNM...$25B): -36%, -63%
Freddie Mac (FRE...$16B): -30%, -63%
MBIA Inc. (MBI...$2B): -67%, -91%
Metlife (MET...$42B): -4%, -12%
Moody's Corp. (MCO...$10B): +11%, -42%
PMI Group (PMI...$0.4B): -66%, -91%
Sallie Mae (SLM...$12B): +23%, -57%
TD Ameritrade (AMTD...$11B): -6%, -9%
Thomson Reuters (TRI...$30B): -12%, -15%

* International Banks:
Australia and New Zealand Banking (ANZBY...$34B): -23%, -25%
Banco Bilbao/Argentina (BBV...$77B): -15%, -17%
Banco Bradesco/Brazil (BBD...$66B): +3%, +28%
Banco de Chile (BCH...$6B): +2%, -1%
Banco Itau/Brazil (ITU...$66B): +7%, +21%
Bancolumbia/Columbia (CIB...$7B): +4%, +6%
Banco Santander/Spain (STD...$120B): -11%, +2%
Bank of Ireland (IRE...$11B): -30%, -51%
Creditcorp/Peru (BAP...$8B): +13%, +45%
HDFC Bank/India (HDB...$12B): -34%, +3%
HSBC Holdings/UK (HBC...$195B): -3%, -12%
ICICI Bank/India (IBN...$21B): -40%, -21%
Kookmin Bank/South Korea (KB...$20B): -18%, -36%
Lloyd's TSB Group/UK (LYG...$40B): -27%, -40%
Mitsubishi UFJ/Japan (MTU...$105B): +8%, -14%
Mizuho Financial/Japan (MFG...$61B): +9%, -29%
National Australia Bank (NABZY...$209B): -21%, -24%
National Bank of Greece (NBG...$24B): -25%, -8%
Royal Bank of Canada (RY...$64B): -5%, -9%
Royal Bank of Scotland (RBS...$77B): -47%, N/A
Shinhan Financial/South Korea (SHG...$17B): -19%, -23%
Toronto-Dominion Bank/Canada (TD...$54B): -4%, -2%
Unibanco/Brazil (UBB...$38B): -2%, +21%
Westpac Banking Corp./Australia (WBK...$39B): -16%, -5%

* U.S. Homebuilders:
Beazer Homes (BZH...$0.2B): -27%, -83%
Centex (CTX...$2B): -40%, -65%
DR Horton (DHI...$4B): -8%, -43%
Hovnanian (HOV...$0.5B) -7%, -67%
KBH Home (KBH...$2B): -12%, -57%
Lennar Corp (LEN...$3B): -11%, -62%
MDC Holdings (MDC...$2B): +13%, -20%
NVR Inc. (NVR...$3B): +17%, N/A
Pulte Homes (PHM...$3B): +1%, -57%
Ryland Group (RYL...$1B): -10%, -40%
Standard Pacific (SPF...$0.2B): -4%, -83%
Toll Brothers (TOL...$3B): +2%, -25%

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*According to the New York Times, "Between early 2004 and mid-2007, a period of unprecedented wealth on Wall Street, seven of the nation’s largest financial companies earned a combined $254 billion in profits. But since last July, those same banks — Bank of America, Citigroup, JPMorgan Chase, Lehman Brothers, Merrill Lynch, Goldman Sachs and Morgan Stanley — have written down the value of the assets they hold by $107.2 billion, gutting their earnings and share prices. Worldwide, the reckoning totals $380 Billion, much of which reflects a plunge in the value of tricky mortgage investments."

http://bigpicture.typepad.com/comments/2007/12/underwriting-th.html

Data Courtesy: Bloomberg, New York Times, Barry Ritholtz

Full Disclosure: I own shares of GS and IBN.

2007's Highest Paid S+P 500 CEO's

Per the AP, 2007's Highest Paid S+P 500 CEO's:

1. John Thain, Merrill Lynch (MER), $83.1 million
2. Leslie Moonves, CBS Corp. (CBS), $67.6 m
3. Richard Adkerson, Freeport-McMoran Copper+Gold (FCX), $65.3 m
4. Bob Simpson, XTO Energy Inc. (XTO), $56.6 m
5. Lloyd Blankfein, Goldman Sachs Group Inc. (GS), $53.9 m
6. Kenneth Chenault, American Express Co. (AXP), $51.7 m
7. Eugene Isenberg, Nabors Industries Ltd. (NBR), $44.6 m
8. John Mack, Morgan Stanley (MS), $41.7 m
9. Glenn Murphy, Gap Inc. (GPS), $39.1 m
10. Ray Irani, Occidental Petroleum Corp. (OXY), $34.2 m

*The total pay figures are rounded, and are based on the AP's compensation formula, which adds up salary, perks, bonuses, above-market interest on pay set aside for later, and company estimates for the value of stock options and stock awards on the day they were granted last year.

Data Courtesy: The Associated Press

Full Disclosure: I own shares of FCX, GS and NBR.

U.S. Residential Mortgage Securitizations

Per respected Oppenheimer & Co. financial analyst Meredith Whitney, for every $1 of U.S. mortgages that were originated since 2000 there were about $7 of 'assets' that were created/SECURITIZED by Lenders. (FYI, the 'securitization' process would largely consist of mortgage lenders + banks packaging the mortgages they originated into mortgage-backed assets that were then sold to a plethora of GLOBAL customers including institutional holders like hedge funds, pension funds, brokerages, banks, etc.)

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*The Average Quarterly amount of U.S. Residential mortgage SECURITIZATIONS that were produced from 1991 to 2004:

- 1991 to 1995: $9.8 Billion
- 1996 to 2000: $59.7 Billion
- 2001 to 2004: $174.4 Billion

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*The Banks with the Greatest Residential Mortgage Exposure:

1.) Bank of America (BAC) --> $266 Billion
2.) Wachovia (WB) --> $170 Billion
3.) Citigroup (C) --> $155 Billion

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*The Banks with the LARGEST Asset Writedowns since the Beg of 2007:

1.) Merrill Lynch (MER) --> $24.5 Billion
2.) Citigroup (C) --> $19.9 Billion
3.) UBS (UBS) --> $18.1 Billion
4.) Morgan Stanley (MS) --> $9.4 Billion
5.) IKB Deutsche (DB) --> $8.9 Billion
6.) Bank of America (BAC) --> $7.0 Billion

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Net of the net, this subprime problem runs DEEP and I'm continuing to stay away from the VAST MAJORITY of stocks that belong in the financial sector. My only financial sector positions are IBN and GS and that's largely because I believe both large cap stocks offer compelling/cheap valuations given their exposure to sustainable, long term INTERNATIONAL GROWTH. Who knows when a bottom will be hit in the U.S. financials...in the meantime there are way too many other (largely international) opportunities out there to research + invest in. Lastly, fyi, the CEO of Wachovia, Kennedy Thompson, was FINALLY FIRED today...good riddance.




Data Courtesy: Oppenheimer & Co.
Full Disclosure: I own shares of IBN and GS.

Ackman on Goldman - Risk CONTROL

During a recent television appearance, IMMENSELY successful shortseller Bill Ackman, manager of the $1.6 Billion Pershing Square Capital hedge fund, acknowledged why he believes Goldman Sachs (GS) has been able to outperform its financial peers (Merrill Lynch -MER, Lehman Brothers - LEH, Citigroup - C, Bank of America - BAC, the artist formerly known as Bear Sterns, etc.) during the current credit crisis.

According to Ackman, Goldman Sachs has been able to outperform because of its Proprietary method of RISK CONTROL.

As he put it, Goldman Sachs CEO Lloyd Blankfein requires that company traders uniquely mark-to-market their assets on a nearly DAILY basis. If a manager is unable to price one of his illiquid assets then he is instructed to "sell 10% of the position" and use that price.

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Perhaps more significant than the subject of Ackman's actual acknowledgement (I had already believed Goldman was the best 'Risk Controller' in town as evidenced by their relative lack of subprime-related asset writedowns), is the SOURCE himself - BILL ACKMAN.

*As noted above, Bill Ackman has been one of the most successful shortselling traders on Wall Street the past couple of years - chiefly benefiting from the IMMENSE amount of financial institution (banking, insurance, etc.) failures exposed by subprime + the Popping of the U.S. housing bubble. Nobody knows and studies financial institutions + their risk control practices better and more THOROUGHLY than Ackman. Don't believe me? Check out the below January 31st, 2008 article from Bloomberg titled "Ackman devoured 140,000 pages Challenging MBIA Rating" (MBI is down 86% year over year):

http://www.bloomberg.com/apps/news?pid=20601109&sid=a7.NpGwa19TY&refer=home

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Random
Thought
Of
Brilliance

With Ackman's $IGNIFICANT blessing, looks like GS's risk control practices should be viewed as the NEW STANDARD and until its peers catch up....GS remains the SAFEST, CHEAPEST and BEST way to play U.S. financials.

Data Courtesy: CNBC.
Full Disclosure: I own shares of GS.

Jim Cramer's Take On The Uptick Rule

Jim Cramer is a strong believer in the SEC reversing its 2007 decision of doing away with the 'uptick' short-selling rule. For some perspective, according to Investopedia.com, the uptick rule was:

"A former rule established by the SEC that requires that every short sale transaction be entered at a price that is higher than the price of the previous trade. This rule was introduced in the Securities Exchange Act of 1934 as Rule 10a-1. The uptick rule prevents short sellers from adding to the downward momentum when the price of an asset is already experiencing sharp declines. The SEC eliminated the rule on July 6, 2007."


Cramer believes that putting the uptick rule back in place would benefit stocks by guarding them against the type of unfair, manipulative activity that quickly drove Bear Sterns (BSC) out of business last week.

" When hedge funds were $500 million they didn't have the power to destroy a stock. When they are $50 Billion they can take down anything, they're bigger than the (marketcap of) stocks. Merrill Lynch (MER) is to avoid (because of the activity that took down Bear Sterns) "
- Jim Cramer, via a 3/21/08 video interview on TheStreet.com (TSCM).


Data Courtesy: Investopedia.com + TheStreet.com.
Full Disclosure: I own shares of TSCM.

A 2H08 MARKET REBOUND ?

OK, upon careful contemplation this week, I now believe the market has a solid chance of bottoming and turning around during the 2nd half of 2008 based on the following assumptions/catalysts (please note, I still expect 2008 to be a net up/down single digit return year...as of today, 3/21/08, the S+P 500 index is down 10% year to date):


1.) SYSTEMIC RISK IS OFF THE TABLE --> Because of recent aggressive efforts by The U.S. Federal Reserve and U.S. Treasury department (including the Fed now allowing the investment banks to stave off short-term capital issues by borrowing at the discount rate), the issue of crisis/collapse for the financial markets is now finally OFF the table. In other words, fears of a DEPRESSION are no longer valid. Earlier this week, the U.S. government also finally 'unleashed' their government-sponsored entities (GSE's), Fannie Mae (FNM) and Freddie Mac (FRE), to expand their purchase of U.S. mortgages and related securities. According to OFHEO director, James Lockhart, the initiatives should immediately pump about $200 Billion into the mortgage-backed securities market. In fact, according to OFHEO, combined with a lifting of portfolio caps on March 1st, Fannie Mae and Freddie Mac should now be able to purchase or guarantee up to $2 TRILLION in mortgages this year.


2.) THE LAGGING EFFECT of RATE CUTS --> It has been historically observed that the U.S. Federal Reserve's interest rate cuts usually have a 6 month lagging effect in terms of stimulating the economy. The Fed cut rates by 125 basis points in January...this should not be felt by the economy until about July. Also, the Fed's recent cuts in March to 2.25% should provide further stimulus to the U.S economy + banking industry (those who benefit from borrowing at a cheaper rate + also by paying less interest to depositors) beginning roughly in September.


3.) $160 BILLION U.S. ECONOMIC STIMULUS PACKAGE --> While the economic benefits are largely psychological, the checks will officially be sent to U.S. households in May 2008. This should be a positive catalyst for RETAILERS + other Consumer Discretionary investments and will help them outperform against their pathetic 3Q07 sales figures. It's also important to remember that the stimulus package was designed with the purpose of improving the liquidity positions of the homebuilders + banks via its inclusion of significant tax-breaks to both beaten-up businesses.


4.) 2008 CHINESE SUMMER OLYMPICS (EMERGING MARKET CATALYST) --> The 2008 Summer Olympics begin in Beijing on August 8th, 2008. This should be a sizable catalyst for investing in China and other emerging markets in general AHEAD of August. The assumed success of the Olympics in China should serve as a GREAT reminder to worldwide investors about the REAL power + momentum of the B.R.I.C. story.


5.) U.S. FINANCIAL STOCK EARNING COMPARISONS --> U.S. financial stock earning comparisons should get easier beginning 3Q08 since 3Q07 was basically when the sub-prime mortgage sparked 'write-down' game began. If 3Q08 write-downs do not exceed the massive write-downs from 3Q07 then expect major U.S. financial stocks to stabilize. The keys will lie in the earnings + conference call stories delivered by the major institutions like Citigroup (C), Merrill Lynch (MER), Washington Mutual (WM) and Bank of America (BAC).


6.) TECH SECTOR SEASONALITY --> The technology stock sector historically underperforms the rest of the market in the spring and summer and typically bottoms in July-August. In other words, tech will become an investable sector again beginning mid 3Q08.


7.) PRESIDENTIAL ELECTION YEAR CALENDAR EFFECT --> Maybe I'm grabbing onto strings here but history shows that the average S+P 500 stock market return in the last year of a presidential term is about 10% (analyzed data is from 1950-2007). The data also determines that the 'best political quarter' is by far, November-January with avg S+P 500 returns of 4.8%. One important caveat to note though (that may make you immediately dismiss this data considering the context), is that the 'election year calendar effect' did not matter in 2007 (when the U.S. undoubtedly began its recession). According to the data from CXO Advisory, we should expect average returns of 18% in the 3rd year of a President's term...the S+P only gained 5.5% in 2007.

REF - U.S. Fed Primary Dealers (Discount Rate)

The Federal Reserve Bank of New York's list of primary dealers (those eligible to borrow from the Federal Reserve at the Fed's discount rate):

U.S. Fed Reserve Primary Dealers:
* BNP Paribas
* Bank of America
* Barclays Capital
* Bear Stearns (no longer solvent)
* Cantor Fitzgerald
* Citigroup
* Countrywide Financial (merged with BAC)
* Credit Suisse
* Daiwa Securities
* Deutsche Bank
* Dresdner Kleinwort
* Goldman Sachs
* Greenwich Capital Markets
* HSBC
* J. P. Morgan
* Lehman Brothers
* Merrill Lynch
* Mizuho Securities Company
* Morgan Stanley
* UBS Securities

Data Courtesy: Wikipedia.com, snagged on 3/16/08.
Full Disclosure: I currently own shares of GS.