Annie F. - Freshman Equities Trader - Weekly Desk Notes

June 21, 2010

• Market Recap
• last night China announced they would allow the Yuan to rise vs. the US dollar. Signals a few things: China has faith in their own economy. It also signals improving relations with Obama administration. China, which is 2^nd biggest econmy in world, it is also the US’ biggest importer.
• Biggest trade imbalance between US and China
• Corporations that will benefit from it are steel companies
• This China news is mixed.

• Research Run
• Upgrades: LII, PANL, AMLN, RHI
• Downgrades:
• Dean
•  Chinese central banks are to return to a “managed floating exchange rate” The last time China did this the Yuan gained 21%
• Steel Sector –China consumes about 35% of the world’s steel and has 60% of the world’s steel-producing capacity ; X has relatively high fixed costs and its European operations contribute a substantial 25% of sales
• BP_-The US and Russia are BP’s most important areas of operation- Russia provides almost 25% of BP’s oil; cost of trying to contain spill has risen $2 billion so far
• Weekend Box Office—Toy Story 3 grossed 109mln, biggest opening for pixar beating the incredible (70.5lm), second biggest opening for an animated movie all-time
• Shine
• Traded an interesting BP options expiration—bought a put
• Standout sectors: solar (fslr); foreign banks (hbc, ing, nbg), oil, airline
• Trading
• Secret to success it created uncorrelated sources of alpha
• Important: how the small caps perform and which sectors are performing well
• Through the summer, we’ll be in a relatively stable environment
• Earnings are in 3-4 weeks.
• Never look at Pnl on an individual basis ---to make a decision based on that is very bad.
• Time to get twaps—
• Our value-added is not trading, it is identify situations that if someone could trade it, they would work.
• Entry: liquidity and view----is stock going to come in further?
• The state that produced the most coal in the US –Wyoming
• Outside reversal day
• Market sold off 24 handles, MOCs are betty to buy. Gap up this morning was pretty over done. We were down at 1041 to 1127—this is nearly an 8% move in 2 weeks.
• Right before close market bounced  

June 22, 2010

• Market Recap
• Futures – S&P futures down 3 handles. Retraced 1/3 of the whole move down yesterday. Yesterday was an outside reversal day, which is typically a trend reversal indicator
• Why we don’t believe yesterday’s outside reversal day is an indicator of a trend reversal:
• We haven’t had a strong uptrend prior to yesterday; VWAP curve from yesterday’s U-shaped where as on May 13 (the last outside reversal day)—more than half of the volume came after 2 pm.
• MOCS were better to buy yesterday.
• This morning we were only 2 handles from fair value, whereas on May 14 we had gapped down off the open
• Almost 7% off the lows from May
• Worldwide—G20 meeting June 26-27 in Toronto; China’s shift to a stronger exchange rate may alter the shape of the world’s economy’s expansion more than its speed; economists said—Chinese consumers might buy more as the rising yuan boosts their purchasing power, while their counterparts in the US cut back on their spending as the cost of goods imported into America rises. China state-owned banks aggreasively bought dollars today to help limit the yuan’s appreciation—currency moves will not be a f ree for all.
• Materials-China plans to remove tax rebates on some steel and nonferrous metal products exports from July 15^th
• Media-MSG could earn up to $50mln if the Knicks sign Lebron James this offseason; Ratings for the World Cup have hit a 16yr high in the US; Yest B&N lowered the price of the Nook to $199 and launched  a WiFi only edition for $149
• Economic Numbers—
• Consumer Confidence
• Existing Home Sales—Previous is 5.77M actual is 5.66M –terrible number
• Richmond Manufacturing Index
• Research Run
• Upgrades: LNCR –medical, DB, AAPL price target raise from 350 to 375
• Dean
• Worldwide: The euro’s 14% retreat against the dollar will boost earnings at least 25% this year,
• Trading   
• Spooz opened flat on the day
• War stories: Last days of Lehman- Summer of 2008. Equity business started with retail and noninstiutional. Lehman was always

June 23, 2010

• Market Recap
• S&P futures up 3.5 handles from fair value
• Quit overnight session
• Today: New Home Sales; predicted to be huge drop off due to expiration on of tax credit
• FOMC Rate decision at 2:15: will definitely be 0-.025%; so the question is  will “ extended period” language be left in
• March 2011 is expected to be first tightening by Fed
• Economy may be more fragile than it was 8 weeks ago
• Gold is up, near all time highs
• Currently unhedged in our net long portfolio
• Steel, housing and financial sectors continue to be rouch.
• Research Run
• Upgrades: DWA from hold to buy at Stifel Nicolaus, Price Target is $35. ; MWW
• Reiterate: ADBE—conviction buy
• Initiation: LULU—price target of $49
• Update on GAIA: DVD sales—approx 40% of total company sales are DVD related. They have 200-500 employees. Solar business—sell home solar panel kit; however they are looking to spin it off.
• Dean
• Europe-
• Apple—has sold out of the initial allotment of iPhone 4’s for launch day.
• Shine
• Recap
• Winners: DFS, HAS, WYNN, HOV
• Losers—CAG, SLV, STF, BBY, MHLR, PAYX, NKE
• Premarket:
• Trading:
• Spooz opened up about a half a handle
• If the Fed announcement is benign and it stays the same, then financials should lead the way.
• TWAP is the average price over time
• Boy plunger- Jesse Livermore  
• the SPOOZ breaking through the back side of that trend line? - Does that mean they are falling below previous support that may now become resistance?
• Shine – on diversifying trades –pick 6-10 trades of levels on any names –be on top part of resistance on a weak name.
• 3 short names and 3 long names. With Stops.
• Earnings tom: LEN
• Rip and roll on ATLS and HAIN
• The Fed did not change interest rate---low volume in the minis, Fed news---people are liquidating post 2 pm.

June 24, 2010

• Market Update
• S&P future and NAS are down
• Q2 earnings commence in two weeks
• Economic numbers:
•  jobless claims –is a good number came in 6,000 lower
•  durable goods --
• Dean
• Worldwide-Funding of Portuguese banks from ECB more than doubles last month—they were paying average yields of 4.67% compared to 3.6% in May. if the yields continue to rise at this rate than they will be paying more than 5% next month which is unsustainable . Germany’s finance minister Wolfgang Schauble is defending his country’s economic policy on the eve of the G20 summit this weekend.
• Len-Company reported 0.21c vs street of $0. Reported Revs 814mn v.s street $835. Orders were down 10%
• Goog-a federal judge in NY rules in favor of Google’s YouTube unit yester in Viacom’s copyright lawsuit against the company---
• Aapl-companies like Bausch & Lomb are buying iphones for their employees, in some cases replacing the blackberry devices. Now about 1,200 salespeople have one according to the WSJ
• Research Run aka Paralysis by Analysis
• Upgrades- HMA, WYNN resorts, Rost, TJX, ZUMZ, ARO, JCG, PSUN, GENZ
• Downgrades: LOW, HD, AEO,
• Initiations: IRBT, TEVA, CSCO, CTRP
• Trading
• PNL was low as (127,000) SPX down 1.3%
• On Friday, June 25th, the Russell indices will be recomposed for the coming June 2010-June 2011 year with new members added and some old members deleted. The composition of the Russell 2000 index (a subset of the Russell 3000E) is purely based on market capitalization size on Russell’s cut-off date (May 28, 2010), not any fundamental business assessment of value or prospects.

June 25, 2010

• Market Recap:
• Senate finally passed financial regulation. Only allowed to invest 3% of a firm’s capital to a hedge fund or private equity funds.
• Europe is still down small in catching up our selloff. Yesterday, we sold off from late 2pm on. Dollar making 3 month lows vs. the Japanese yen.
• RIMM—missed earnings. It’s all about competition, not about the economy or Europe. Rimm missed on sales of handheld devices.
• Russell Reconstitution, which is generally market neutral. They do annual rebalancing from mrkt cap, h/o because we’re dealing with the Russell 3000, a large amount of stocks.
• S&P futures up near highs
• RIMM and ORCL reported last night- ORCL reported solid earnings while RIMM missed (due to competition)
• Companies are not saying anything about negative impacts due to European crisis
• Further confirmation that stocks are still cheap right now
• 8:30a, final GDP number- largely ignored
• Revised UMich Sentiment: largely ignored
• Largest item on agenda: Russell reconstitution, which is usually market neutral (Russell 2000, small cap, and 1000, large cap), occurs on last Friday in June at 4p
• Names that are going to be added
• R2 to R1: promoted names, R1 to R2: demoted names
• R1 to R1, R2 to R2: rebalancing
• Reconstitution should increase liquidity flow
• Flows have often gone the wrong way for individual names because of the tremendous amt of speculative dollars chasing the rebalance; e.g., R1 to R2- see sell off
• Outlier bids and offers can be filled
• Today expect market will push higher
• We are already long this morning

• Dean
• Financial Reform- At 5:40 am, after 20 hrs of debate, Dems and the White House reached an agreement on the final shape of the financial reform legislation—if it passes Obama should sign it into law                             by July 4. The final form of the Volcker Rule will allow banks to make limited investments in areas such as hedge funds and private equity funds, compares with the $5bln or so the company has invested. The limit for JPmorgan Chase, which owns a hedge fund called Highbridge and a private equity group, would be about $2.8bln—when the company has more than $1bln invested in Highbridge alone. The final version  of the “Lincoln Amendment” that deals with derivatives was almost derailed, however worked out a deal that allows banks to trade interest-rate swaps, FX swaps, gold &silver swaps, certain credit derivatives and other instruments that serve as safeguards for hedging

New Volcker rule: more clearly define “proprietary trading.”

• allow insurers in some cases to do trading necessary for their normal course of business.
• prevent conflicts of interest by sponsors and underwriters of asset-backed securities.
• allow small investments in hedge funds and private equity funds, but ban companies from using these funds to escape proprietary trading limits. Investments in hedge funds and private equity funds could only be 3% of a bank’s tangible common equity.
• require banks to divest their proprietary trading activities within two years. The Federal Reserve can extend this period if necessary.
• Supreme Court- supreme court made a ruling yest that provides some hope for Conrad black (former publisher of the Telegraph) and Jeffrey Skilling (former Enron CEO). At the heart of the ruling is prosecutor’s requent use of the “honest services” statute which has allowed the gov’t to charge defendants with breaching their duties to shareholders through dishonesty and fraud. Long time critics of the statutes is too broad and allows minor indiscretions to result in criminal convictions (e.g. using a company computer for personal use)
• Gulf Oil Spill-a Federal judge in New Orleans rejected a white house request to allow the 6 month ban on deep water drilling
• Shine
• Top Winners: FBP, KEY, ORCL, CAN
• Top losers: KBH, BP—new 52 week low; APC, RIMM, RTP
• Trading
• Same store sales comes out first Thursday of every month
• The Russell ranks all the stocks by market cap. Indexes get moved around. Some names graduate, some names get demoted.
• Gold is closed –electronic trading is still open—this means the pit is closed.
• ADP is starting to gain some traction bc they’ve been more accurate. They starting to pare the consensus workers down.
• Huge MOC’s to sell it weighing on the market into the close

• LumberJack hour:
• Michelle—helping out with media side—subscription model, branding, marketing, website development, data base management. Background is internet and multimedia. All time passion is coaching basketball.
• Why is Klein quirky—
• Is trading interesting by itself or does it need to be dressed up? Staged content vs. raw.
• In sports, corporate world…teambuilding, shaking people up---getting emotions out.
• Let the freshman have some voice
• Competitiveness—smoke the competition—make them obsolete. You have to work your ass off.

 Annie-

• Assignment: portfolio---know how many analysts follow the names, fundamentals, when they’re reporting. Financials—CIT, JPM, BAC, GAS, MS—what makes them tick---get best color.

Project: Bounces 2% off lows---Jeremy I’d really like you to look at this, Strategy can be successful played with a lot of size. Klein is up on this. Offline when the three of us could meet. Send him an email Monday. Midday, I know you’re busy, but I’d like to get you and Klein. Business to be aggressive in. Get in someone’s face.

--Trading---is there fear?

-lulu –hedge with S&P, RTH. ….89.98 by 10:55 RTH down 55 cents. Did not think about market risk. Play for relative value—bigger size.