http://www.fdic.gov/news/news/press/2008/pr08065.html

First Priority Bank, Bradenton, Florida, was closed today by the Commissioner of the Florida Office of Financial Regulation, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with SunTrust Bank, Atlanta, Georgia, to assume the insured deposits of First Priority.

The six branches of First Priority will reopen on Monday as branches of SunTrust Bank. Depositors of the failed bank will automatically become depositors of SunTrust. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. For the time being, however, customers of both banks should use their existing branches until SunTrust can fully integrate the deposit records of First Priority.

The good news is that Suntrust is taking over the accounts so the real impact is negligible... Plus the fact that Suntrust was allowed to take it over means that regulators do not have any concerns about the health of STI itself...

According to research from TrimTabs Investment Research BLS might be underestimating the size of job losses due to poor methodology...

I certainly hope TT is wrong, however, they have been much better than BLS in reporting the "real" numbers... BLS's historical adjustments make the headline number look almost irrelevant.

That's certainly not good news if you ask me. Excerpts from the TrimTabs Employment Newsflash, reprinted with TT's permission...

TrimTabs employment analysis, that uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, finds that the U.S. economy shed 169,000 jobs in July. Meanwhile, the Bureau of Labor Statistics (BLS) reported today that the U.S. economy lost only 51,000 jobs in July. In addition, we estimate total job losses for the year have reached 734,000 while the BLS estimates that only 463,000 jobs have been lost, a difference of 37%. We believe the BLS is seriously underestimating the harm high oil prices are inflicting on the U.S. economy. The BLS' flawed methodology will finally report that the U.S. labor market was in trouble in 2008 sometime next year. A comparison of TrimTabs' employment results versus the BLS' results from January through July 2008 is summarized below.

source: TrimTabs

We believe the BLS is seriously under reporting job losses for five reasons:
The BLS applies a mysterious "birth/death" adjustment to their employment survey to account for the formation of new businesses and business that close, which according to their website is an estimate. In an economic downturn, we believe the BLS consistently overestimates the number of companies that are formed and underestimates the number of companies that close.

This past month the "birth/death" adjustment was a negative 1.46 million jobs.
Only 40% to 60% of the BLS establishment survey is complete by the initial release date, and is subject to large revisions in subsequent months. In the past six months, the BLS has revised their employment estimates downward by 35%.

"When written in Chinese, the word 'crisis' is composed of two characters. One represents danger, and the other represents opportunity." -- John F. Kennedy

One of new things I am going to do now in all of my posts here at SkepticalCapitalist.com is summarizing each article with my one sentense directional view of the market and/or names mentioned. For the purposes of full disclosure you should always assume that I can buy or sell any of the names mentioned at any time and thus it is not in any way a recommendation...

For the article below it would be long dollar UUP and SPY, short emerging markets (EEV, FXP)

I think one thing is finally becoming clear: The U.S. economy fell into a recession earlier this year. The economy contracted in the first quarter (measured by gross domestic product). The second quarter not only failed to impress, but was also negative, if adjusted for tax rebates and exports.

A global slowdown is developing
But the more interesting trend is becoming clearer every day. And I think all investors should pay attention to it: The emerging markets "decoupling" story is looking more and more like a myth. Thus allocating too much money to emerging markets stocks today could very well be a mistake.

I plan to reduce my emerging markets exposure here in my Strategy Lab portfolio over the next few weeks after my return from The Money Show.

Cracks are starting to clearly appear all around the world. Chinese manufacturing contracted in July. Stock markets in Russia, India and Brazil are experiencing bear markets.

Absent a very severe crash in the price of oil to, say, below a $100 a barrel, what has initially started as housing-driven recessions in the United States and the United Kingdom may end up being a very prolonged period of lower worldwide growth.

Many more bank failures caused by problems with bad real-estate loans all over the world are now a realistic possibility. And real-estate prices may follow the equity markets down in the near future.

Commodities should be falling
In the meantime, we have what I believe is a puzzling dead-cat bounce rally.

With the Federal Reserve on hold now for possibly the remainder of 2008, commodity prices should be getting stronger, not weaker. Instead, hedge funds seem to be liquidating their commodity positions. (Expect a lot more headlines about hedge funds suffering large losses and going bust.)

This has made many of previously frothy natural-resources stocks look cheap compared with the prices of the underlying prices of commodities.

In addition, short covering has driven up the prices of the most beaten-up stocks; many now look unreasonably expensive. This illogical rebound makes intelligent short-covering very difficult. So I am covering some of my shorts very early and will wait for a better opportunity to introduce them back.

The Fed's rate expectations should have also been theoretically bearish for the dollar. Instead, the greenback rallied, taking U.S. stocks with it.

Even after recent weakness, the multiyear rally of the euro should have destroyed hopes that Germany, France and others can avoid a recession. But, traders have chosen to disregard the bad news on both sides of the ocean.

Are earnings suspect?
The strong euro makes most of the third-quarter earnings estimates for large U.S. multinationals look awfully suspect.

They won't get a boost from translating profits in euros back into dollars. And they face the possibility of squeezed European consumers. With Europe and the United States possibly experiencing little or no economic growth, China, India and other will cool off much faster than most people expect.

Emerging markets weakness should not be surprising. Until the recent sell-off, one would have expected the economies of Brazil and Russia to hold up much better than China or India, but the strength for those economies would only occur if commodity prices continued to stay high. This now seems unlikely, and thus the BRIC economies (Brazil, Russia, India and China) may slide even more.

If commodity prices fall further, the United States and Europe would be the winners in the long run, and the BRIC economies would be hurt. And if commodity prices rebound again in the short to medium term, U.S. and European consumers will cut consumption even more, and the BRIC countries will get hurt again.

The weak dollar will help
I still believe U.S. markets will hold up much better than that of our Asian and European counterparts. The relatively weak dollar will boost U.S. exports and help protect the economy against an extreme pullback.

It does not mean that we are out of the woods in any real way -- or that the current rally is real. It does mean that, with some help from the falling price of oil, stocks could very well move higher in the short term, and some of the most beaten-up stocks could rise 10% or more on any sign of good news.

Stay safe out there, and I hope to see you in San Francisco at The Money Show. In the meantime, please feel free to e-mail me at skepticalcapitalist@gmail.com.

"Wisdom is knowing what to do next; virtue is doing it"
David Star Jordan

The stubbornness with which Goldman Sachs and Co has been defending its oil is going to "$150 a barrel by Labor Day" forecast is now starting to look awfully suspicious? What if the leaders of the "Wonder Land" finally have gotten something wrong? With investment banking revenues severely hampered by virtual shutdown of the M&A world and fixed income world's behavior becoming so erratic and unpredictable, commodities became the only "bullet proof" and reliable source of profits for GS last few quarters. But if Goldman's actual net trading positions still reflect the "long all commodities" bias, I think it is time for any GS investors to realize- they could be in for one nasty surprise when the earnings time comes...

This would also suggest that most recent underperformance of GS compared to other IB houses like Morgan Stanley and Co might have not been a pure accident, but rather represent a beginning of a new trend. Remember the "Ken Heebner - best investment manager alive" and "CGMFX will keep going up by 25% a year forever" stories ...

source: www.stockcharts.com

I think instead it was more of a right sector at the right time story... It's probably time to acknowledge that the commodities (momentum) outperformance super cycle is now likely over and not coming back any time soon... I know, many still think that GS and Co is always right, and thus POT, MOS and IPI "will surely" retest their previous highs, but I respectfully disagree. I also think that when July/August results for most of the formerly best performing hedge funds start rolling in (inclusing GS)- people will be shocked...

My take on the whole discussion has been very simple for a while- we have already seen the multi year highs in most O&G and agriculture related shares and the new long term trend is now down...The only exception could be solar energy (JASO, STP, CY, LDK?) But one could argue it's really Tech and not Energy anyway :)

Every several years or so, new leaders emerge in the market and this time it won't be commodities or emerging markets... Which sector exactly will it be? Too early to say, but healthcare is a viable candidate, so is tech and small cap value stocks... What's more- value is now likely to outperform growth consistently for several years; so the long S&P (SPY or SSO)/short emerging markets (EEV) pair could keep delivering its magic for quite a while...

P.S. Be careful out there, in my opinion markets are now dangerously close to topping out and could easily flip over to the downside some time in the next 10 days or so...

"Current Directional Moodster"-EEV, SMN, DUG, SPY, JASO, STP, CY, LDK- long; MOS, POT, IPI- short

Finding good shorts outside of energy sector has been tough but we are getting much closer...
Stay safe, skepticalcapitalist@gmail.com

"Every beginning is a consequence - every beginning ends something"
Paul Valery

As I mentioned in my previous post (link), it does certainly appear as if the unstoppable outperformance of emerging markets has hit an invisible wall recently and is now coming to an end. But is it a logical result of slowing global growth, or rather simply a short term trend that is likely to reverse itself during the next several months?

Unfortunately for the global market cheerleaders, I believe that era of worry-free investing into emerging markets is coming to an end, and only those, who actively manage their allocation to specific markets/securities instead of relying on a bunch of broadly diversified international mutual funds, have a chance of repeating the solid double digit historical returns from the past several years. Market does not seem to really care about the blistering short term financial results, as was the case in the past, but instead actually is now paying attention to "formerly unimportant" quality of earnings, political risks and longer term macroeconomic projections.

So is the recent severe under performance of emerging markets at all unreasonable? Isn't Chinese GDP still growing by 10%+ a year, and Brazilian and Russian consumers are still willing to pay insane amounts of money on the bunch of unlocked 3G iPhones? Or how about the simple fact that even after a recent 20% haircut in prices of most commodities, virtually every tangible resource out there is still trading at prices much higher than a year ago? Shouldn't the cost cutting efforts of virtually every financial institution in benefit outsourcing titans of India and Eastern Europe? Not so fast.

"Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof"
John Kenneth Galbraith

Most individual investors out there tend to forget that the total value of the global equities (stock) market is actually several times smaller than that of the world fixed income (debt) market, and the conflicting signal being sent by the two recently thus deserve special attention. While the stock market has rebounded handsomely from its July lows pointing to supposedly improving conditions in the US/World economy, spreads and yields in the fixed income world actually gotten considerably worse recently, suggesting that there still could be a lot more pain to come on the economic front...

Spreads on commercial mortgage based securities widened dramatically and set a new record virtually every day over the last several weeks, even as financial stocks continued to rebound...

Source: Markit.com

WSJ also reported that spreads on bonds sold by American Express this weekend were ridiculously high, suggesting very little appetite for risk out there...What's more, I actually now think that corporate bonds of "blue chip" companies like AXP could be a better deal than underlying stocks themselves, which is certainly not a bullish sign for stocks...

"The American Express Co. finance unit Friday sold $2 billion of five-year bonds with a yield of 7.34%, a person close to the situation confirmed. The premium to compensate investors for perceived risk was 4.25 percentage points over Treasury rates, at the high end of initial expectations and nearly one percentage point over the premiums on some of American Express Credit's existing bonds."

Source: WSJ.com

Another interesting development - yields on AXP bonds are consistent with a much lower rating than that currently enjoyed by the company... This means that: 1. Either these bonds are ridiculously cheap (very possible, but not yet probable?) or 2. Rating is too high (probable, but very unlikely to change...)

"The premium on the new American Express bonds is more typical on bonds rated Ba1, the first rung in the speculative-grade ladder, according to Moody's Market Implied Ratings Service. American Express Credit Corp. is rated A+, with stable outlook by Standard & Poor's. It is rated Aa3 by Moody's Investors Service."

I have already pointed out in my previous articles, that the biggest change during the most recent rally as compared to the one from early spring seems to be the fact, that current rebound has not been driven by a consistent set of even mildly positive economic data, but rather purely by the violent reversal of the long commodities short financials strategy.

Finding good stocks to short outside of the energy and materials sectors has been a pretty significant challenge recently, what's more- most of the good "fundamentally" based shorts have actually done phenomenally well.

As a part of my strategy, I try to adapt to market conditions regardless of how illogical they might seem on the surface, and thus my most recent screen results might seem a bit unusual... :)

Stay safe out there, skepticalcapitalist@gmail.com

"Always borrow money from a pessimist, he doesn't expect to be paid back"
Author Unknown

Recent outperformance of small cap stocks over their large cap colleagues is starting to face an increased scrutiny. Not only today's article in WSJ raised some good questions about the increasingly suspicious rebound, but it also offered an explanation by raising the same point I have already raised numerous times over the last several weeks- the rally from July lows appears to have been driven predominately by short covering and not fundamental improvements in the underlying data...

So I think that a pair trade of short small cap ETF (like IWM)/ long (SPY) looks increasingly interesting... If markets turn down from here, small cap is likely to underperform; but on the upside the difference will probably be smaller and thus won't matter as much...

"Much of the fuel for small stocks is coming from the mass-reversal of bearish bets by hedge funds, many of them closing out their positions to lock in profits. And since small-cap stocks can be thinly traded, a rush of traders buying back stocks during the summer, when volume typically is light, is increasing the Russell 2000's move...

In the spring, nearly 11% of the shares of stocks in the Russell 2000 were sold short, Mr. DeSanctis says. That compared with just 2% for stocks in the Russell Top 200 index, where the average weighted market capitalization was about $107 billion as of July 31. In late June, short interest on a widely traded Barclays exchange-traded fund that tracks the Russell 2000 was nearly triple the number of shares outstanding, up from roughly even in January 2007"

And while I do not necessarily agree think that large cap stocks are going to be much safer during the upcoming quarter because of the negative US dollar impact on earnings of large multinationals, small caps have now simply ran too far too fast and thus are likelier to pull back in the short term...

On the other hand one needs to be carefully watching if mono line retailers like ARO,AEO, DBRN, PLCE, FINL, URBN,ROST, BKE, CRI and GPS continue their recent outperformance... In the past, this sector has frequently led the way out of a bear market...These are my favorites in the sector and are a part of my Bear Market Watch indicator- I use as a proxi confirmation of an major turn in the market's direction- many had a false start in the spring but look to be holding up better today- I don't think we are quite there yet for now, but the fact that most did well today is not a bad sign for stocks...

Here is an easy way to track these- courtesy of www.Stockcharts.com
http://stockcharts.com/charts/candleglance.php?ARO,AEO,DBRN,FINL,CRI,GPS,ROST,BKE,PLCE,NWY|B|A12,26,9

Do you have trend reversal indicator? Tell me what you think, leave a comment or send an e-mailskepticalcapitalist@gmail.com

All is not gold that glitters." -- Old Russian proverb

Up to 100% mortgage with no money down. Does that offer sound familiar?

What is the first thing it brings to your mind? Florida condos? A flip-that-house TV show? Or the near failure of some of the largest U.S. lenders and the Federal Reserve's bailout of Wall Street?

After the shock waves the subprime fiasco sent throughout the world economy, you probably wouldn't expect to see that slogan repeated en masse in the U.S. for quite a while. But here comes the interesting part. I was shocked to see an advertisement like this in an airport of one of the four largest developing countries in the world: Russia.

Through my job, I have been able to observe firsthand the tremendous changes in Russia over the past few years. I have also made handsome profits from investing in some of the companies there.

But all good things come to an end, and this advertisement in a Moscow airport last fall offered an indication that the end of the phenomenal run of Russian equities was not too far away.

Dark side of the boom

I covered this topic on my blog, The Skeptical Capitalist, and exited some of the key names before they crashed. With all the attention Chinese and Brazilian markets have received, it might come as a surprise that most of best-performing mutual funds of the past five years were tied to Eastern Europe.

Russia has been the major driving force behind this boom. The ING Russia (LETRX) fund has earned compounded annual returns of more than 35% over the past five years. And one might say they have been justified. Corporate profits are growing for most companies by solid double-digit numbers. Gross domestic profit is expanding in high single digits. And headlines of Russian billionaires buying up real estate in London and setting records on Christie's auctions are more frequent than reports on new Britney meltdowns.

But there is a dark side behind this boom. The Russian economy is showing significant signs of the illness that has been called "Dutch disease." Its symptoms include near-complete crowding out of investments in manufacturing and other productive export-oriented sectors by to the unsustainable trend of a strengthening currency driven by excess petrodollars. Real-estate prices in central Moscow are higher than those in 99% of the largest cities in the world, and this in a country with a GDP per capita just one-fourth that of the United States.

Some quick points that some of you might notice:

1. My Strategy Lab Portfolio does not include too many names from the list below- Yes, that's correct, the main reason for this is that I am trying out a completely different screener for this round of MSN competition with a completely different input ( call it Vad's Motley Fool based picks :)... It's not yet conclusive whether results are worth it :)

The output below, however, is from my good "old" screener that has worked quite well for me for over 5 years :) I now intend to post the results around the mid point of each month, so come back for more... Tomorrow- I will post short ideas as they started to look a bit more reasonable...

2. There are quite a few Big Names on the list which is somewhat unusual for me- my rationale is simply "don't argue" with numbers and thus AAPL has made it :)

Hopefully you can use this list simply as a bucket of good ideas :) E-mail me with questions at skepticalcapitalist@gmail.com

P.S. Answer to a frequently asked question: Why am I sticking with some of the old Chinese names (FSIN,SDTH and CHNG) at the MSN contest while at the same time ranting against emerging markets in general? call it a "production" issue- I actually submitted a journal last week to untrade some of them and replace them with EEV - ultra emerging markets short but we had a communication breakdown and thus trades weren't posted...Now it's too late as both FSIN and CHNG have tanked and I found myself in unfamiliar negative territory for now :)

"Turn your face to the sun and the shadows fall behind you.
Maori Proverb"

As one should have expected oil and other commodities have staged a short rebound over the last several days, and while I still think oil will end the year lower, I couldn't resist to take a part in this "inevitable" bounce- what goes down so quickly has to go up for a little while :) Remember the "dead cat bounce" analogy- given how fast commodity stocks fell in July/August, it is a logical outcome for them to stage a short term bounce even if long term they are still poised to go lower...

I pointed out in numerous articles already -in my opinion, commodity stocks as a group have topped out in early July and now the new long term direction is down. Because of that, it is highly unlikely (not impossible :)) that I will buy O&G stocks outright in the nearest future. But as my trades from last week's article on MSN should have shown (due to production issues article got posted but trades did not), I have grown increasingly interested in solar stocks as an alternative way to play high energy prices.

Some might ask "Heh? "Isn't alternative energy all one big fairy tale"? My answer is "not so fast"- regardless of where the oil prices ends up in the short/medium term, I think we as a nation have finally gotten a message loud and clear- anything (except ethanol) that can get us of the "oil addiction" is a good thing. Wind and solar are the logical way to go...

I have stayed away from solar field for quite a while as it simply became too hot, overvalued, irrational and crowded earlier this year. Trading prices of names like LDK, CSUN and SOLF seemed to defy any fundamental logic as they became "new darlings" of momentum crowd. "All solar stocks are a buy" and "opportunity of a lifetime" scared the hell out of me and I sold my positionss. But, just as I expected, the crude reality of very tight silicon supplies, lower European subsidies and cut-throat competition finally set in, and led to the most logical outcome- prices for most of these names have been cut in half and jokes about "silly" solar companies/ investors became a staple in many media outlets.

So with that in mind, being a contrarian investor I really am, the amount of "fear driven" selling finally became so encouraging, that I decided to do my research on the sector all over again, and about three weeks ago I finally picked the same three names I bought last year (STP, JASO and CY(SPWR))...

Nice song to cheer up :) First seen on Calculated Risk

"I wish I didn't know now what I didn't know then"
Bob Seger

I remember taking a close look at AAPL back in October of 2007 as the stock was rapidly closing in on the magical $200 level... I liked the company products, business model, management and the only real negative noted was the hefty price. But, regardless of how many times the "always dreamy" analysts raised the target price and how many "I love AAPL" posts were posted on every possible investment board I could never come up with a reasonable justification for the "sky high" stock price. So it came as a huge surprise to me that just several weeks ago AAPL showed on one of my screeners as a potentially inexpensive stock.

So being a permanent curious research junky I really am, I figured that it was finally time for me to put my original "too expensive" thesis to the test and do a little more research into the iconic company's stock price... And while I ultimately still found the AAPL stock to be too expensive, I came to realize that studying a phenomenon of the unlocked "iPhone" helped me to generate some other investing ideas

Let's start with giving credit where credit is due- I do believe that Steve Jobs is a genius. There are only few people in the technology world whose words arguably carry similar weight (Bill Gates, Steve Ballmer, Larry Page and Sergey Brin) and he probably has no equals in his ability to market products. In addition- the ingenuity of AAPL's R&D team, the "simple and brilliant" design of AAPL's products still remains an envy of the entire IT world. The loyal customers of AAPL are willingly shelling out ever larger sums of cash for never slowing flurry of newer and better products. But this is precisely where I believe AAPL got in trouble in the first place and why it is so vulnerable today...