Friday, November 12, 2010

Quick thoughts on Heat-Celts from a LeHater...

So I went to my first Heat game of the "Big Three" season last night...and pretty much cackled my way through it.  My thoughts on the evening are below.  Note that I have not read anything about the game as yet this morning, because I want my views to be original and "untainted"...and then we'll see how it matches up with the experts.

Truth be told, I am not really a LeHater at all.  It's a free country.  The guy can sign and play wherever he likes, and he is one heck of a athlete.  Of course, in this age of media hype, it's sometimes hard to remember that he really hasn't done or won anything, and that he is probably much, much, much less "mentally tough" than all his supposed comparisons, like Magic, MJ, Bird, Kobe, and even The Durantula and DWade.  But, whatever...I can easily put my disappointment in LeBron's "decision" (aka, the signature, pariah moment representative of all the frustrations we have with today's spoiled, me-first, who-cares-if-we-win-I-have-a-sneaker-contract-anyway, professional athletes) aside and just try to enjoy the game.  After all, the potential for take-your-breath-away moments is off the charts with the 2010-2011 Miami Heat, right?  So, rather than focus on LeBron and the whole Big Three distraction, let's just pretend to block out names and faces and storylines and think about last night's contest as between the home team in white and the visiting team in green.  In other words, let's just focus on the basketball.

However, when you do that - when you try to put aside the personalities and the noise and the media hype - here's what you are unfortunately left with (last night, anyway):  terrible, terrible basketball.  The contrast in the teams was striking.  Over and over again the Celtics would move the ball, work the shot clock, make the extra pass, and get great shots.  And in response on the other end, time and time again, the Heat (invariably either LeBron or Wade) would respond with a rushed, off the mark, terrible shot about five seconds into the shot clock.  Just when you'd think, "ok, the Heat are veterans...they will play off one another and try to do what the Celtics did and try to match them pass for pass and execution for execution," the Heat would come down and do something rushed or boneheaded or just...amateur.  It was actually embarrassing and a little uncomfortable.  I am not kidding.  To respond to the Celtics "swing the ball around the horn, final gorgeous touch pass to a cutting guy for a lay-up and the ball never hit the ground once" with the Heat's "dribble dribble dribble one on one move shoot" was just pathetic.  And it happened far too often.  What were these guys thinking?

Anyway, that's the real disappointment here - it's that the Heat are actually playing crappy ball.  Uninspired, I-have-no-idea-how-to-play, there's-no-leadership-at-all basketball.  I know LeBron and Wade are more than capable of amazing things, and I assume the 4th quarter had its moments since the game ended with a much closer score than when we left at the end of the 3rd.  That ability to explode is what will ultimately make them fun to watch sometimes and dangerous to play all the time.  But it just so happens that the moments in between are just...awful.  I saw turnovers, air balls, and forced shots that looked like they were out of 6th grade CYO.  Again, what are these guys thinking?

I guess I just assumed that I would hate the ballers but really respect the beautiful game they played.  But if last night is any indication, we may be left with hating the ballers and hating their game.  What a waste that would be.  Hey, I expected growing pains.  I wrote about it in July and even predicted a 10-10 start to the season.  (They're 5-4 as of writing.)  As we know, All-Star games are not usually flowing, beautiful events with tons of team chemistry.  And Miami's starting five is now basically an All-Star team.  It's hard to mesh those styles and egos, for sure.  But I never expected them to look like they had never played the game before.  I never expected them to be terrible. 

Granted, I am also putting a major microscope on one game...and it's very early into the season.  I understand that my commentary should be set against that backdrop and that you shouldn't expect to derive too much accuracy from a sample size of one.  But it was also a nationally-televised game against the team that beat the Heat in the opening game of the season, and it was at home.  In other words, it was a "statement game" nonetheless.  "Players" show up for that game.  Big Time.  I expected a statement from supposed "all-World" guys like Wade and LeBron.  But the only statement those guys seemed to be making was "what time is our reservation for dinner on South Beach tonight?"  And on the other side of the court, Paul Pierce and Ray Allen and Rajon Rondo made a few statements of their own.  To whit:  "We made our own 'Decision.' The decision to be the alpha dogs on the east coast.  So sit down and shut up."  Good for them.  The bottom line is that they played harder, better, and smarter.  They deserved to win, and they exposed the Miami Heat as the bunch of independent, selfish, least at this point in the season.  From a purist standpoint, I would love to watch some good basketball down here, rather than a glorified "And 1" pick-up game.  So I hope the Heat get it together, I really do. 

Let's also talk about the Miami crowd for a second.  I have nothing against the beautiful people and celebrities who are now descending on Miami to bear "Quitness" to the Big Three and the non-existent Twelve.  After all, it's high entertainment and the buzz in the air is very cool.  (Although you can feel the buzz evaporating from the area faster than it left the mosquito splattered on your windshield.)  But I do have a bone to pick.  In my opinion, the best crowds are knowledgeable crowds, and I also feel that there's a give-and-take between player and spectator in those optimal environments.  Meaning:  the best crowds actually "participate" in the game at times, and don't just consume the action as pure spectators.  This is classic Madison Square Garden when the team is good.  Actually, even when the teams are bad in NYC, the crowd participates.  Miami falls down flat in that department.

Here's a prime example of what I mean:   At one point in the 2nd quarter, DWade drove to the bucket and missed a pretty difficult and pretty well-defended twisting lay-up attempt.  When the ref didn't bail him out (remember the 2006 Finals, btw?  DWade got more calls than a stripper walking by a construction site), he made a few dramatic gestures (but avoided a "T") toward the ref and hung around the basket for a few seconds to bitch and moan.  Of course, the Celtics corralled the rebound, pitched the outlet to Rajon Rondo, and sprinted down the court.  Rondo found Ray Allen (Wade's defensive responsibility) spotting up, hit him in stride, and Allen drained a three.  It all happened in about 2.7 seconds.  Predictably, the crowd groaned and someone nearby said "damn, Ray Allen is killing us."  No...incorrect, sir.  It's not Ray Allen killing you.  Right there, on that play, DWade was killing you.  In fact, I could almost imagine the response if the game were in NYC and DWade played for the Knicks.  I could almost hear the hypothetical Knick fan a few feet down from me with the Brooklyn accent yell out "Yo, DWade...howzabout you stop bitchin' and run back on friggin' D you friggin' guy Allen is killin' us...howzabout you sprint back and guard him in transition?!"  See, that's the difference.  That's what I mean by knowledge and "participation."  Not to mention accountability.  Miami fans love the pretty dunks and the fast break lay-ups, but they don't seem to appreciate the development of a play, or the little stuff away from the ball that actually makes the game what it is.  It's a shame.  Hopefully they get there some day.  After all, this team could use a few more people getting in the face of these supposed "untouchable" Big Three superstars.  They could use to be dressed-down by the fans now and again.  If they just only knew how and when...

Morning Note...

Futures ~50bps lower this morning as sovereign debt concerns continue to weigh on Europe (down ~30bps but well off the lows) and speculation of another rate hike in China (down ~5% overnight) weighs on Asia and global commodities.  Rumors in China include a looming 100bps rate increase and a stamp tax on equities.  Worth noting that today is officially Day 1 of QE2, and the Fed is expected to begin purchasing Treasuries.  USD -40bps.  Gold -90bps.  Oil -1.7%.  In Europe, the specific fear is that Ireland is quickly going the way of Greece; apparently the Medley Report had commentary on this topic that fueled further speculation: 

Intensive EU discussions are underway that will lead to a financial-rescue plan worth more than €80billion for Ireland and as soon as next week. There will be no "private-sector participation."  The final decision is likely to be taken Tuesday (November 16) at the meeting of the Eurogroup, the committee of the Eurozone's 16 finance ministers and representatives from the European Commission and the European Central Bank, but a political agreement to act has already been struck at the G20 summit in Seoul.  Officials will be negotiating over the weekend over the exact shape of the package but it is clear it will be similar to the Greek deal in that it will be sufficient to remove Ireland from the market for up to three years, and it will be combined with an IMF and EU adjustment program. Where it will differ is in the efficiency of raising the funding. Both IMF and European Financial Stability Facility cash will be available without a repeat of the political maneuverings over Greek aid, although the Irish won't need financing until they restart their funding program in the new year. Once the EFSF has the political go-ahead, it can start funding. Eurozone governments are also seeking a substantial British contribution to the program, probably via the €60-billion European Financial Stabilization Mechanism, which is guaranteed by the EU's 27 members and not just those that use the euro. In a bid to stall contagion, the ECB is likely to step up its bond-purchase program -- as it did in the first days after the May 8-9 crisis meeting. Officials differ over whether or how soon the Portuguese government will have to seek external assistance.

Regarding the G20 in South Korea, it all looks like a lot of “blah blah blah” to me, but here’s a cut-and-paste summary:

…the G-20 agreed to develop early warning indicators to head off economic turmoil, as such, finance ministers from the group of 20 will work throughout next year on a set of indicative guidelines designed to identify large economic imbalances and actions needed to fix them.  In other news regarding the G-20, European finance ministers stated that a crisis-resolution mechanism they are discussing that may force bondholders to share the cost of a bailout, would not apply to outstanding debt. Lastly, the Group of 20 stated that emerging markets facing a surge of capital inflows can adopt regulatory steps to limit currency swings and stem asset bubbles. 

Some good commentary last night from BTIG’s Mike O’Rourke, who is looking for a little better communication from the Fed:

Shooting Blanks.

One short week after the commencement of QE2, we are questioning whether it is the Titanic.  Well, perhaps a comparison to the Titanic is too harsh, but Carnival's Splendor may be appropriate.  Market participants are well aware that Equities and Commodities have risen on the hopes of the liquidity wave, but the question is whether it was worth it.  The FOMC's policy was met with nearly worldwide condemnation, and the yields that the program is expected to keep low are rising.  The yield on bonds that are subject to the least Fed manipulation have been skyrocketing.  We have to give credit to the Bloomberg Global Poll.  According to the Bloomberg Professional Service, this is a survey of "an elite group of decision makers in finance, markets and economics."  It provides remarkable market insight.  For example, on the question regarding the state of the U.S. economy, the percentage of responses of improving and deteriorating were exactly the same.  Thirty-six percent of respondents believed the FOMC policy was about right and 53% believe it is too aggressive.  It gets even more interesting, because when asked specifically about QE2 itself, 56% believe it will not help the economy over the course of the next year.  When all of those metrics are taken as a whole, you have an investment community that believes the U.S. economy is essentially "stable," but Fed policy is too aggressive yet will be ineffective.

Since August, we have argued that the FOMC's communication of this major policy shift has been nothing short of awful.  While the likes of NY Fed President Bill Dudley have argued their case for QE2, Chairman Bernanke has done little to none of the heavy lifting to communicate the FOMC's intentions and goals.  Market participants want to know why additional liquidity in a recovering economy will foster the recovery and bring down Unemployment without creating new imbalances.  When the economy and the markets are falling out of bed, any new program is an easy sell to in the investment community, but in an environment of stability, investors equally fear the unintended consequences of aggressive intervention.  Although they will trade, nobody wants to invest in markets that are manipulated.  Just looking at the Treasury market sums it up.  Nobody wants to short Treasuries where the Fed is an active buyer, so all of the selling winds up in the 30 year.  At want point do other bonds recognize they are pricing off a manipulated yield curve and start reacting to where the market "should be."

The real kick in the teeth for the Fed from Bloomberg's Survey is that 76% of respondents believe the program will have "little or no effect on Unemployment."  Four percent of respondents even expect it to push Unemployment higher.   The other important aspect is market views on inflation.  Seventy percent of respondents expect the Fed's policy to create inflation.  One problem is a large subset of that group, 20% of all respondents, expect inflation will rise to a "dangerous level."  To its credit, it appears as though the Fed has killed deflation fears for the time being, only 2% of respondents said inflation will be lower.  Remember, these are market professionals responding to this survey.  This is the precise target group the Fed is trying to convince that this is correct policy.  The justification for the policy is that the Fed is pursuing its mandates of full employment and stable prices.  Meanwhile, 4 out of 5 market professionals do not believe the Fed's policy will bring the Unemployment Rate down.  Seven out of 10 believe it will create inflation and 2 out of 10 believe it will create dangerous inflation.  Along similar lines, 69% of respondents believe the U.S. is intentionally attempting to devalue the Dollar.  Right now, market participants (ourselves included) are all feeling good about the initial reaction to QE2, but  sustainability equals success, and that is less clear.  The fact is few believe this is sound policy, or that the Fed will achieve its intended goals.  Instead, it sounds like there are many people trading, and less actually investing.  If economic data continues to improve as it has been, then all is well that ends well.  But, if the data fades and confidence is lacking in the Fed's programs and capabilities and thus the Fed's credibility, then the institution has real problems.  The Fed needs a new marketing blitz explaining how policy will bring down Unemployment without creating the feared inflation while the window of opportunity exists.  We do not expect inflation, but we see time, not QE, healing the wounds of Unemployment.  Just like everyone else, we would like to hear some explanations.

Finally, this is yesterday’s news, but I just love this summary of Jeremy Grantham’s recent comments.  As one trader said, “Grantham always seems to be the only adult in the room:”

Jeremy Grantham: Investors should be mostly in cash, which gives them security as well as the option to take advantage of other investments if prices fall; “If anything crashes and burns in value—say the US stock market—if you have no resources, it doesn’t help you," he explained. "If the bond market crashes, and you have not resources, it doesn’t help you. What cash is is an available resource.”  Grantham thinks stocks are overpriced, so being in cash now gives investors the chance to enter the market later. Grantham also recommended investing in such commodities as oil and copper for the long term of 10 to 20 years. For institutional investors, Grantham said a good mix is to be overweight in franchise companies, modestly overweight in emerging markets, underweight in everything else, plus a lot of cash and “patience.” Grantham, a strong critic of the Federal Reserve, thinks the central bank should stick to controlling the money flow. He’s against its stimulus efforts, including its recent announcement to try and boost the economy through $600 billion in quantitative easing (QE).  “The Fed has spent most of the last 15, 20 years manipulating the stock market, whenever they feel the economy needs a bit of a kick,” he added. “I think they know very well that what they do has no direct affect.”

INTC raises dividend.  DIS higher after yesterday’s early earnings release.  WEN beats by 1c and raises dividend and buyback.  JCP slightly lower on earnings.  BofAMLCO ups CLWR.  GSCO ups ETN.  Janney ups GOV.  MSCO ups RGA.  BARD ups AH.  BCAP cuts DLTR.  BERN cuts BA.  FBRC cuts GIL, ZQK.  JEFF cuts WG.  MSCO cuts GNW, MET, MTZ, NBL.  CELM lower on earnings.  FNSR raises guidance.  CNYD lower on earnings.  CODI announces 4.3M share offering.  Cramer positive CTEL.  DVOX misses by 9c.  HGSI lower on FDA drug concerns.  IRE higher on 6K filing.  KTEC higher on earnings.  NVDA beats by 1c.  RJET prices 12M share offering at $7.80/share.  SHZ higher on earnings.  STRI lower on earnings. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 

Today’s Trivia:  What mathematical symbol did math whiz Ferdinand von Lindemann determine to be a transcendental number in 1882?
Yesterday’s Question:  How many total veterans are there in the United States?

Yesterday's Answer:  There are ~25 million veterans in the U.S.

Best Quotes:  BTIG trader commentary… Good morning.  My main takeaway from yesterday’s action was the resiliency of the tape.  CSCO was down 17% early in the day taking its food chain of suppliers down with it.  At one point the SOX was down over 3% and yet managed to rally about 2%.  The S&P 500 was down about 1% at its session low and the NASDAQ was off by close to 2% at its worst level of the session.  The S&P 500 was down about 1% at its session low and the NASDAQ was off by close to 2% at its worst level of the session.   The dollar has now advanced in five straight sessions for a cumulative gain of about 3%, which makes for its longest and strongest streak in months.  Support for the dollar has come amid concerns about the debt of such fiscally challenged Eurozone countries as Ireland, Portugal, Spain, and Italy. , energy stocks swung to a 1.0% gain while materials settled 0.9% higher. The two sectors outperformed for virtually the entire session, but the broader market never really rallied around the pair.  With stocks settling in the red for the third time this week, they enter Friday with a weekly loss of close to 1%, which would be its worst weekly loss in about three months.  Weekly equity fund inflows continue with $1.8B ex etf equity inflows according to AMG data.  Bond inflows at $3.3B.