Blog Posts by Jeff Macke

This morning Citigroup (C) reported adjusted EPS of $1.23 on revenues of $20.5 billion. The results were well ahead of Wall Street estimates of $1.17 and $20.1 billion, respectively, but as we saw with JP Morgan (JPM) and Wells Fargo (WFC), big banks can report almost anything they want depending on the assumptions they choose to make. Items like loan loss reserves and how they choose to adjust their hedging book at the end of a quarter makes apples to apples comparisons all but impossible.

Yahoo! Finance senior columnist Mike Santoli says Citi's results were cleaner than JPM or Wells, but the real question is where the company is headed under new CEO Michael Corbat. Corbat took over Citi almost immediately after the company reported earnings for Q3 2012, then "cleaned the deck" in Q4 by including a $1.3 billion legal expense in numbers. Now he's got a clean slate to start putting a stamp on the company.

Corbat has two choices. One is break the company down and turn it into what amounts to the old Citibank; a retail model with a corporate kicker. The other alternative is clinging to the current model of trying to be everything to everyone. The latter would be somewhat ironic given that it was Citi under Sandy Weill that cobbled the model together in the first place, but obviously much has changed in the decade plus since those moves were made.

What's it mean for Citi shares as the company stands today? It's hard to make more than an educated guess in terms of valuation on a company that could be in a different business by this time next year. "In terms of a value play, I feel it's kind of like the other banks in that it's going to trade based on return of capital, yield curve, all that stuff that they don't control."

The sell-off in commodities is getting serious in early trading on Monday. Word of Chinese GDP coming in at 7.7% against 8% expectations last night is being blamed, but today isn't the start of the selling. Brent crude is down 3%, but was already 15% lower that where it traded in February. Copper is near 18-month lows, aluminum is near 3-year lows and silver is down double-digits today alone.

Yahoo! Finance senior columnist Michael Santoli says a confluence of negatives are weighing on commodities as a whole. The accelerating flight out of funds playing emerging market growth can't be ignored as a significant anchor on prices.

"The commodity funds that were riding this trend, big money raisers in the past several years to play the supposed super cycle, clearly are in liquidation on some level." says Santoli. "I think it was underestimated exactly how much strong growth and therefore a lot of wealth creation in China and India was directly fueling gold and silver purchases."

Related: Gold Getting Hammered- Watch $1,340, Says Najarian

With would-be industrial buyers of the goods pulling back their orders, at the same time aggressive redemption of trading funds is happening, a double-whammy for prices. Taking but one example, the SPDR Gold ETF (GLD) saw more than 2% of its assets under management walk out the door in just the week ending April 11th. Once the largest ETF in the world with nearly $80 billion AUM, the GLD has shrunk by more than 25% since 2011.

JP Morgan (JPM) and Wells Fargo (WFC) reported earnings this morning, coming in more or less in line. The Street's reaction is muted in mid-day trading on Friday, but Chris Whalen, executive vice president and managing director of Carrington Investment Services, says there's turmoil under the surface as Wall Street continues to redefine itself in the wake of the financial crisis.

"What investors have to get their heads around is what is the business model for these banks are going to look like a year from now," Whalen says in the attached video.

The root of the problem is in the mortgage business, which Whalen thinks peaked in Q4 of last year. With lingering suits, Basel III requirements and Dodd-Frank all swirling around the miasma of the banking system, financial institutions may not be certain what they're going to look like in the intermediate term, but they aren't about to test their lending boundaries.

Loan originations have seen sizable improvements of late, but there's only so many Americans both looking to buy a new home and able to secure the loans at the headline rates. "If you're below a 700 FICO you can't get a mortgage today," says Whalen.

Unfortunately a relatively low percentage of Americans fit the bill, leaving both the banks and would-be buyers in the lurch. When banks can't lend to nearly 40% of those in the market, Whalen says a pick-up in housing isn't sustainable.

Gold is breaking below long term support in early trading, continuing to erode the bedrock of the idea that the yellow metal is a way to hedge against the vicissitudes of capital markets. When stocks rise, as they have all year, gold moves lower. Unfortunately for gold bugs the reverse hasn't been true of late. When stocks have been weak, gold has failed right along with it.

Jon Najarian, co-founder of OptionMonster.com, says gold's weakness is part of a growing body of evidence that the yellow metal isn't necessarily the alternative currency of choice. "Bitcoin is a sign and a symptom of what's wrong, but unfortunately gold is not the cure," he says in the attached video. "Gold is not the beneficiary of all that fear."

In other words, gold is just another slip of paper being bought and sold on the whims and urges of the crowds. Of course that doesn't mean gold can't be traded, just that it's time to consider it from a trading perspective rather than a storage place of wealth.

As a trader Najarian is playing gold on the long side by selling puts on downdrafts, such as the one being seen in early trading Friday. He's using $1,470 strikes. That means Najarian could be forced to buy gold lower, forcing him to "own that asset at the worst possible time."

Quarterly earnings have been trickling in all week, but the real earnings season is just getting underway today with JP Morgan (JPM) and Wells Fargo (WFC); the first of the banks out with results. Breakout spoke with Mark Minervini, author of Trade Like a Stock Market Wizard, about tips on how to trade the financial sector over the next few weeks.

"I have a few rules. One is never buy the story and never buy the fundamentals without some confirmation from the price itself," he says in the attached video. So far in 2013 the financials have been confirming a rally and then some. The Financial Select SPDR ETF (XLF) is up over 13% year-to-date, easily besting the S&P 500 over the same time periods.

With more than 100% gains from the lows of 2009, Minervini has grow "a little suspicious" of the financial sector and what he calls the "growth cyclicals" in general.

"After you've been running up for a couple years I think it becomes more of a trading market," Minervini offers. While stocks are still making nominal highs he's seeing a small correction taking place in the form of rotation from leaders to laggers, suggesting it's a little late to start buying the stocks that have been leading the way higher.

On Tuesday at 2 p.m. the Federal Reserve inadvertently sent the meeting minutes from its March gathering to more than 100 people, including banking executives, congressional employees and Wall Street bank liaisons. Officials say they didn't realize the mistake until 6:30 the following morning. In response, the minutes were released at 9 a.m. — five hours ahead of schedule but 19 hours after the material was leaked.

What in the name of Gordon Gekko happened and who gained or lost from the leak? In the attached video Jon Najarian, co-founder of OptionMONSTER, says he has reason to believe the pre-released information found its way to the trading pits almost immediately.

"We saw right at the time the release happened, Jeff, massive put sales," Najarian explains. "And then we saw a whole bunch of call buying in the short term in the April contracts in the just at the money call options, which over the next 24-hours turned out to be a pretty good bet."

For options newbies, shorting puts is a bet that the market won't go lower. Puts increase in value as the market falls and erode as they near expiration. Call buying is a specific bet that the market will move higher in a short amount of time.

Pop quiz: Which public company had the highest market capitalization of all time when adjusted for inflation? Here's a hint, it shares the same fate as Borders, Woolworth, Circuit City and Blockbuster. In other words, it went bankrupt and disappeared taking loyal shareholders' money with it.

Before I give you the answer, it's time for a hard fact: Companies are no different than dogs, grandparents or houseplants; they're born, they live and eventually die. There are no exceptions.

The answer to the quiz is The Dutch East India Company. Formed in 1602 to carry out colonial activities for the Dutch government, its stock was valued at over $7.4 trillion at the height of the tulip bubble in 1637. In 1798 the company went bankrupt and was officially dissolved two years later.

In the attached video Brian Sozzi, CEO of Belus Capital Advisors, runs through five retailers that are household names today but will be non-existent five years from now.

1. J.C. Penney (JCP)

It's become fashionable to pick on Penney's lately. (In fact, this may be the first time the word "Penney's" and "fashionable" have been used in the same sentence since the late 1970s.) Sozzi says JCP's decision to fire ex-Apple retail head Ron Johnson and bring back former CEO Myron Ullman will only speed up their inevitable demise.

The bearish case on consumer-related stocks is so very seductive. The consumer is in heavy debt, confidence is shrinking, the stocks have had enormous rallies, and the Fed's easy money is the only thing standing between shoppers and bankruptcy. Add to that list the desultory expectations for the group during the coming earnings season, and shorting the consumer names becomes an almost irresistible proposition for the shorts.

That seductive negative assessment is exactly what consumer stock bulls like Ryan Detrick, sr. technical strategist of Schaeffer's Investment Research, likes to see. "We like to buy expectations and not prices," he says. For all of the reasons listed above Wall Street's expectations for consumer stocks are rock bottom. As a bullish contrarian, Detrick loves nothing better than stocks making new highs in the face of skepticism.

In the attached video, he offers four ways to bet on the consumer and against the bears.

SPDR S&P Retail (XRT)

An ETF containing Best Buy (BBY), Groupon (GRPN) and a whole bunch of consumer cyclicals is the quintessential Detrick pick. The fundamental picture for the group is "not great if you look at it from way up high but it's all about expectations."