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Christopher Atayan
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| Beginning Another Robust Financial Services Cycle |
5/11/2009 7:00 AM EDT
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We are now solidly in the early stages of another robust financial services cycle. Financial markets follow a regular path that starts with secondary equity offerings and high-yield bond offerings then works its way into mergers and acquisitions, private-equity-led LBOs, venture capital and then IPOs and aggressive bank lending. The cycle ends in scandal, bankruptcy and litigation. I write more in a piece in Commentary this morning.
Position: Long JPM MS
I am seeing some secondaries come into play here, but this is not a surprise. Capital One (COF), Principal Financial Group (PFG), and US Bancorp (USB) are the big financials with it being 56M, 42.25M shares and $2.5B in common stock, respectively. Capital One also has another 2.45M coming from current holders.
I am covering some of my COF and PFG premarket. This is a nice way to being a blurry eyed Monday.
On a related note, the trade adjustment I posted over the weekend, was not meant to be a prediction, but it was a plan of attack, or rather defense, as the case may be.
Position: short COF, short PFG (both from Friday)
I promised several emailers that I would let them know when I was out of the Capital One (COF) short. I have exited the short this morning at 28.78 (average cover price).
Position: Long red eyes, short visine
To add to Tim's comment, the capital raise for Capital One (COF) comes after the stock rose a hefty 81% last week. Lost in the hoopla of a passed stress test is the fact that quarterly loan loss rates might eventually weaken the balance sheet to a truly stressed point in 2010. Forecasts for next year are still murky--there's a huge divergence in the estimates.
It will be interesting to see if COF can line up demand for all that stock, though other companies have recently been able to round up demand fairly quickly in secondaries. These banks are doing the offerings this morning, but so many other companies that have seen their stocks move sharply up off the lows might also be tempted to line up at the secondary trough.
Position: none
I now see that a host of companies (beyond the ones Tim mentions) have filed mixed shelf offerings this morning. Again, it will be interesting to see if these deals get done quickly and easily. And if the secondary market proves healthy, does that prod bankers into lining up IPOs once again?
Position: none
The QQQQ is trading down this morning after two days of dropping, with an attempt at reversal Friday... We are in a pullback market where we should move down to around 32 on the QQQQ .... As I mentioned last week, I am seeing some frothy trading which means sharp moves up, followed by sharp moves down... The banks continue to be in the lead and should be watched closely.... I would expect a pop to around 34 on the QQQQ this morning where I will be looking for a short and a move down to 33 potentially...
Position: NM
Capital One (COF) has drifted lower. If you were short on Friday, then I would not hesistate to either take some off the table, or cover yourself by buying some calls or selling some May 30, May 27, or May 26 puts against the stock. We have exited Capital One (COF), as well as Principal Financial Group (PFG), and a portion of Wells Fargo (WFC) just a moment ago. COF and PFG have now announced the secondaries we were waiting on.
Position: short WFC
934 = 93.85
926 = 93.05
921.50 = 92.60
918.50 = 92.30
915.50 = 92
910.50 = 91.50
904.50 = 90.90
899 = 90.35
Position: Short SPY
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Bob Byrne
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| Morning Trade |
5/11/2009 9:10 AM EDT
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The bulls have some Monday morning weakness to contend with, but as long as they can hang onto strong support at 910.50 they are in control. If the markets are able to absorb all the equity offerings and trade higher bulls will find moderate resistance at 915.50, 918.50, and 821.50. Choppy trading (with an upside bias) should be expected in this band of resistance levels. Above 921.50 and bulls tackle strong resistance at 926 and attempt another breakout (though 929.50) towards moderate resistance at 934.
A sustained trade under 910.50 and the bears push this market lower...targeting strong support at 904.50. Although the bears gain traction under 910.50, it will take a trade through strong support at 904.50 and moderate support at 899 to nudge traders into selling rallies.
Position: none
The price of a stamp today goes to $.44 up from $.33 nine years ago - a cool 3.2% inflation rate. Deflation anyone?I continue to believe we had a inflationary bust and classic banking panic v. deflation, but with the government involvement in so many industries we are now setting up for low growth with high inflation.
Position: None mentioned
The futures are coming to the rescue of the short-sellers this morning and I am looking at several areas of the market to key on. Here are some of the names and pre-market quotes as of 9:00-9:05 am:
Earnings Stories:
Dish Network (DISH) - $16.85 up 10%
Priceline (PCLN) - $102.00 down 3%
Index/Ultra Plays:
UltraShort FTSE/Xinhua China 25 ProShare (FXP) - $16.43 up 8%
UltraShort Real Estate ProShares (SRS) - $21.00 up 6%
UltraShort Financials ProShares (SKF) - $41.22 up 6%
UltraShort QQQ ProShares (QID) - $38.23 up 3%
The FXP and QID feel better than the SKF/SRS at this point, but don't rule out a decent bounce in the SKF/SRS. I would let the open play itself out a bit to see if the selling in the financials/real estate plays will last or if the shorts panic cover once again.
Upgrade/Downgrade Key Stocks to Watch:
Starwood Hotels (HOT) - upgraded-- stock is at $22.50 up 2%
Lowe's Companies (LOW) - downgraded -- stock is at 19.39 down 2%
Home Depot (HD) - downgraded -- stock is at $24.90, down 2%
Secondaries Announced:
Capital One Financial (COF) - $27.70 down 12%
Prinicipal Financial Group (PFG) - $21.39 down 10%
US Bancorp (USB) - $19.48 down 5%
BB&T (BBT) - $25.33 down 4% -- stock also cut its dividend
KeyCorp (KEY) - $6.79 down 3%
I would watch these names very closely. If these names can shake off this news this morning as easily as Wells Fargo (WFC) and Morgan Stanley (MS) did on Friday with their announcements, a spike could once again occur.
I like to use the pre-market quotes as an early indication of what I may be dealing with. I will be back shortly with some trading ideas/gauges.
Position: none
I will be carrying over some of last weeks's ideas to watch for potential plays.
As for momentum plays that I will use to judge how well the upside momentum can be, those names include First Solar (FSLR), InterContinental Exchange (ICE) and Blackrock (BLK).
I will also watch four financial names closely. They include JPMorgan Chase (JPM), Wells Fargo (WFC), Goldman Sachs (GS) and American Express (AXP). AXP is the one play that I would consider the better of the short plays if these names struggle.
I will be watching for a potential transports pullback with FedEx (FDX) as my lead indicator and potential short.
As for retail, there will be two themes I plan to follow. One is using Coach (COH) as my key indicator for a potential retail sector breakdown. If that occurs, J.C. Penney (JCP), Autozone (AZO), Advance Auto Parts (AAP) and O'Reilly Automotive (ORLY) could work well, as those names showed us some weakness late in the week.
That's it for now. I will be evaluating more plays as they present themselves.
Position: none, but will continue to answer e-mails as fast as I can throughout the day.
Recall that I posted last week that Monday is the worst day of the week. The selloff was too much at the open not to take a bite. I bought some Ultra ProShares QQQ (QLD) for a trade at under $33.50. This is on top a some QLD I owned from April.
Position: QLD - long stock
Most large-cap tech names are up nicely off the morning lows. Even recent laggards such as Dell (DELL), Broadcom (BRCM) and Nvidia (NVDA) are back in the black for the session. As I awaken each Monday morning, I wonder if I'll be greeted by more M&A activity in this space. Nothing cooking today, but a stabilized market is bound to reinvigorate discussions.
Position: none
I am reiterating that I think the "too far too fast" arguments are bogus and that intraday selloffs should be used to acquire stocks.
Position: none
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Paul Rubillo
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| Gauges I Forgot to Mention Earlier |
5/11/2009 10:50 AM EDT
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I forgot to mention two more gauges. One is another momentum play that I am watching closely, which is Green Mountain Coffee Roasters (GMCR).
Also, I put up the following names on Saturday, and these should be names to watch for any sign that buyers may have tired:
MGM Mirage (MGM): The casino operator was trading at $1.99 on Mar. 6 and has done some recent financing initiatives that should help the company avoid bankruptcy. Stock closed Friday at $12.58.
Ford (F): The automaker was trading at $1.70 on Mar. 6 and was the subject of a potential pre-packaged bankruptcy. The stock has rebounded to close Friday at $6.24.
Wyndham Worldwide Corporation (WYN): The hotel play was trading at $2.92 on Mar.6 due to debt/economic concerns, but it has since rebounded. The stock closed at $12.90 on Friday.
Dow Chemical (DOW): The company is coming off a controversial acquisition of Rohm & Haas that ballooned the company's debt. The company announced a secondary offering of common stock this week which was well-received. The stock closed Friday at $17.50.
I was not able to pull the trigger on anything I mentioned earlier, as the market moved real quick in some of the retail shorts I mentioned. Watching the bounce here for more opportunities.
Position: none, but hopefully traders can use the data I am pulling for my own work to help with their analysis. Let me know if you are seeing some success with my work!
With Priceline (PCLN) reaffirming guidance here, we like the looks of the stock, and we are buying some of the May 105-110 call spreads for a speculative play as well as some of the stock itself. The stock is currently just below $106.
Position: long PCLN
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Jim Cramer
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| Fitzpatrick vs. Insana? |
5/11/2009 11:32 AM EDT
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Inflation dead or alive and well -- I'm liking the debate to the right of this...
Position: none
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Damien Park
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| Activist Campaign Could Lead to Big Gains at Chemed |
5/11/2009 11:56 AM EDT
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Jon Heller and I recently began distributing a research product that combines the two disciplines of activist investing with deep-value company analysis in an attempt to uncover decent undervalued public companies with the potential to generate outsized returns due to an activist investor's involvement.
On Friday we issued a report for Chemed (CHE). RealMoney Columnist Conversation readers can access the two-page analysis here.
Brief summary: MMI Investors -- an influential dissident shareholder with 3.5% of the shares outstanding, is attempting to replace five directors on CHE's 11-person board at the annual meeting scheduled for May 29. If successful, MMI hopes to use its influence in the board room to split the company in two.
CHE currently operates in two distinct business segments: Vitas Healthcare ($819 million hospice care provider) and Roto-Rooter (the $341 million plumbing business everyone knows).
The central issue is not whether the businesses should be split/sold, but when. Chemed's board says its not opposed to splitting the two businesses but want to wait for more favorable economic conditions. MMI believes it will take six months to finalize a tax-free spinoff so it's more than prudent to begin the process today.
MMI estimates the spinoff could potentially yield an increase in share value of approximately 40% to 75%.
Position: None
The price action is textbook early inflation.
Acknowledging that traders often overshoot, I'll give away the base in oil that ranges from approximate $35 up to $45. But since the breakout, oil is up 25%.
At the same time, the Dollar has declined 7% and has broken through a key moving average (the 200-day moving average).
At the same time, commodities (as measured by the DBC ETF) are up 15% (yes, I know that oil is a key component of this ETF...but then, it's a key component of just about everything we use).
Don't know about anyone else, but I'm paying more at the gas pump.
I'm sure we'll start seeing creative hedonic adjustments...but to me, this isn't even a close call. Nor is it even an opinion or judgment of mine. Rather, I'm simply looking at what the market is saying.
I'm a big fan of deflation. I'd love to see things get cheaper. I'd love to see rates continue to be at record low levels. But the fact is that the 10-Year is up nearly 10% since the beginning of March (again, I'm not evenusing the extreme low in December. That was an overreaction and it's not something that would be particularly useful in detecting an inflationary environment. Rather, it is simplyl a reflection of the emotional and reactionary nature of investors.
Nothing more I can say about it.
Position: none
I don't think the mess with the banking system is fully over or discounted yet.
Who do you want to believe: Bernanke and Geithner or me? They said subprime was contained and that the banking system was fundamentally sound. I predicted right here in print 1,000 bank failures, a debt implosion and an RTC II. The stress tests were a manipulated whitewash designed to create the appearance of banking soundness. I understand that the Feds are doing everything they can to help the financial sector. Taking interest rates to 1% for the second time in six years to stimulate overconsumption, risk-taking and excess leverage surely helps the banks.
However, financials and households are still terribly overlevered. it makes sense to be careful with the sector.
I am not short many financials because they became so oversold in March, but I am seriously considering reloading my trading short positions in the space. At some point this summer, I expect to be there again.
Position: None
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Howard Simons
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| Two Cents on Forward Inflation |
5/11/2009 12:22 PM EDT
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Measuring inflationary pressures by looking backwards at indicators whose link to inflation is surprisingly poor is not the way to go. These indicators include a wide range of physical commodity prices, which reflect industrial demand and cyclical supply considerations as much as they do current inflation, the dollar, which reflects a combination of flight capital and relative interest rate expectations, and even TIPS breakevens, which remained remarkably constant between 2004 and last year's break.
Created money is not a replacement for lost capital. Capital created from savings, investment and earnings represents current and future goods and services. Created money represents debt used to claim those goods and services. If inflation at its most basic is money chasing goods and services, more money demanding a non-expanded pool of goods and services will be inflationary.
The problem will begin once credit demands start to rise; this is when the created money will start multiplying through the banking system. We do not see it yet, but we are laying the conditions for inflation to re-emerge in the future.
Position: None
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Alan Farley
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| Health Care Stocks Looking Good |
5/11/2009 12:29 PM EDT
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Health care stocks have been perking up nicely in the last few sessions. It's the top-performing sector today, with a broad variety of issues moving higher.
Mindray Medical (MR) is an interesting sector play. The stock rallied into the 200-day MA about a month ago and has been building a basing pattern since that time. Recent price action shows a small cup and handle pattern, with resistance at 26. A breakout over that level could trigger a strong rally into the low 30s.
Caution: The company reports earnings after the bell today.
More technical comments and annotated chart here.
Position: nm
The banks have run fast and hard, but seeing that the banks are able to raise capital in the open market, without converting the preferreds to common, we feel that some consideration, for a longer term holder, has to be given to the Powershares Financials Preferred ETF(PGF). Not only does it sport a double digit yield, but also, the security does have options that trade around it. The options market is not quite as liquid as we would normally prefer, but in combination with the monthly dividend, this provides a nice buy-write opportunity.
Position: nm - long from time to time on PGF, but it does get called occassionally.
11 years ago taking the other side of the British decision to sell gold was a great decision. I wonder if taking the other side of quantitative easing will prove the same.The problem is listing the full range of assets they have purchased (TARP, TIPS, Treasury, Agencies, etc.). It's odd though since the government is both selling and buying these securities.
Position: None mentioned
Here is an interesting and typical situation. Everyone knows that Meredith Whitney will be on CNBC during the final trading hour. As usual, Maria Bartiromo will provide a nice setting, drawing her out and giving plenty of opportunity to explain. We have already seen two or three good examples.
Everyone also has a good idea of what to expect in the interview. Some people planning to buy might be waiting to get this "news" out of the way. Others (not RealMoney readers of course) might find the interview to be fresh information.
Assuming you plan to buy before the close, should it be now or later? In the absence of real fresh news, is this even relevant? Personally, I'm waiting.
Position: nm
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Doug Kass
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| Memo to 'Jazzy' Jeff Miller |
5/11/2009 1:15 PM EDT
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From my perch, Whitney, like Nouriel, is old news.
Her impact calls may be a thing of the past.
That said I admire, the analysis of both Dr. Doom and the Whitster but don't necessarily agree with them at times.
Position: None
Although the timing of future inflation is not clear to me and there are still some deflationary forces at work in the economy, I have to agree with Howard S. on inflation. If you believe in economic history and principles, what we're doing has to ultimately create a lot of inflation unless we stay in a depression and have deflation.
I don't believe that long-term deflation will happen, so the only other reasonable alternative is a lot of inflation created by all of this money printing combined with a decline in the real economy. You don't need strong demand or strong economic growth for inflation; you just need more money than goods and services. As we create more and more money via the Fed printing press and Treasury borrowing and the supply of goods and services keeps declining with all of these layoffs and production cutbacks and potential declines in international trade due to protectionism, this problem is going to get worse.
Some inflation is a better outcome for stocks than deflation, so this is bullish. It will turn ugly if the Fed is unable to navigate an exit strategy from all of this excess liquidity and the bond market is hit hard. Only time will tell.
Position: none
Since I mentioned a few of my forecasts in an earlier post, I have another off-the-wall prediction. Within 5 years, I expect much higher marginal tax rates, perhaps as high as 75%. Someone has to pay for all this government intervention. In the thirties, marginal rates soared from 24% in 1931 to 79%, heck lets just call it 80%, in 1936. Considering the heavy handedness of this current Administration and Congress and their lack of respect for rule of law and property rights, I expect a major hike in tax rates for high income earners. Under the auspices of "fairness" and out of necessity, the marginal rate hikes may even spill over into some sort of wealth tax, as ugly as that sounds. What do you think, the mother of all bailouts is free? File this post away, I am certain to refer to it again in the future.
Position: none
Just after the open, we had a note out to clients today to get out of trading longs in BAC, and for the aggressive ones out there to go short it between $13.65--.95, which we are filled on. Daily and weekly DeMark TDST lines were hit late last week, and this name, along with most of the banks, are seemingly ahead of themselves. Check out a chart of the BKX Index, too. It stopped right up against its top channel line drawn parralel to the March lows, and got a TD Sequential sell signal today, too.
We think these names get a pause and refresh. Moreover, a close today in the S&P futures under 910.50 increases odds that we see a move to 882--876 before it would take out last week's high. Tech and defensive names are seeing buying today.
Position: N/A
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Dan Fitzpatrick
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| Backward Looking Inflation Indicators |
5/11/2009 1:46 PM EDT
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Howard, I'm not really sure how you can say that the link between oil, gas, gold, the Dollar, and yields on the one hand, and inflation on the other, is "surprisingly poor". Isn't that the definition? When the price rises in a trend (versus a spike), irrespective of underlying reason, I call it inflation. Maybe there's another word for it -- but I'm a simple guy and "inflation" works for me.
And with respect to "backward looking" indicators -- the unspoken truth is that every bit of data is backward looking. The market anticipates the future. That's a basic tenet of investing and market analysis. But I have yet to see one piece of economic data that is not compared to what has come before. That is, ipso facto (pardon the Latin), backward looking. As such, there is no difference between hard core economic analysis and the study of price action and interrelationships. They are exactly the same -- the former is just more respected (for reasons that escape me) than the latter.
This is a timeframe issue. Right here; right now...are we seeing inflation? I think so. But is there a risk of deflation? Sure, you can't borrow your way out of debt without having to pay the piper at some point. And when our debt burden rises to about 80% of GDP, I'm thinking that we might have a few troubles that aren't "figureoutable".
Just my two cents worth from Main Street.
Position: Loving the exchange of ideas -- sans hubris.
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Tom Au
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| Target Corporation and Tax Bracket Targets |
5/11/2009 1:56 PM EDT
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I just returned from Bill Ackman's Town Hall on Target meeting. He presented an impressive and balanced dissident slate with nuanced views on Target's (TGT) problems. The company does well in fair weathered times, but has lost ground to WalMart during the recent downturn. As such, it risks not being "best in class" in its various lines of business. Ackman's team consists of turnaround specialists in key businesses, rather than people with just good general business skills. Ackman also has interesting suggestions for boosting the stock price, or at least the stock transparency, such as doing a partial spin-off of the company's extensive real estate (specifically land) holdings.
And, regarding another topic, I believe that Bob Marcin is right in his belief that there will be higher marginal tax rates. The problem I have is that it may not stop at 75%. I fear 90%, which was the stopping point following the latest "crisis" cycle (of the 1930s). More to the point, 90% was the proposed penalty rate on bonuses.
Position: Long TGT, a belief in Bill Ackman, a belief in long cycles
I was able to pull a quick First Solar (FSLR) long for a fast $4 move. I had to decide whether to go long the best name on my long board, or short leading contenders JC Penney (JCP) and Fortune Brands (FO). Now that the trade is done, I have refreshed my thoughts to see what I can look at this afternoon. FedEx (FDX) is another short idea that still seems worth keeping on the radar as well.
I am watching recently high-beta plays, PNC Bank (PNC) and Prudential Fiancial (PRU) for some more guidance on the financials. JP Morgan Chase (JPM) and American Express (AXP) seem to be just hanging there, as buyers wait. Capital One (COF) and Principal Financial Group (PFG) seem to be having the biggest share of the sellers from the companies announcing secondaries this morning. Keep an eye on these last two plays for shorting opportunities.
Amazon (AMZN), Priceline (PCLN) and Apple (AAPL) are all attracting buyers as I watch the Nasdaq move back into the green again.
Not much selling in the Dow Chemical (DOW), Ford (F), MGM Mirage (MGM) and Wyndham Worldwide (WYN) "Back from the Brink" collection.
Position: none, but having to continue to accelerate my 1999 playbook offense more so than I have in a long time! Feeling like the days of "Air Coryell" with Dan Fouts going up top to John Jefferson, Charlie Joiner, Kellen Winslow and Wes Chandler!
Today's an inflection day. I don't have trade ideas flying up here left and right. Why? Some days you just don't push it. Don't force yourself to find a trade, whether it be long or short. The opening gaps can present opportunity, but can also present some challenges. If you're feeling the pain of being long, which has been rare lately, a little like stepping on a sea shell while enjoying a sunny, 89 degree day hearing the waves lap off in the distance. A slight distraction, but it won't detract from the greater joy. If you're on the beach, take a moment to surmise the surroundings. Maybe some cheap puts spreads, or just taking a little off the table here until you can find your comfort point.
If you "have" to get long, tech has been pointed out, and looks like where the rotation is going. The nasdaq hovering around the 200 day moving average at least gives you a frame of reference for a downside stop.
If you are short, and unless you got short Friday, then today is a minor relief (think aloe on your sunburn), but only a temporary relief of longer term pain. Lock in some Friday profits, get some upside protection, or sell some puts.
The point is this: Take today to get MORE comfortable for the week, and the rest of May.
Position: Long sunburn on the bald head, short aloe...ouch
Dan F., the key thing to remember is the chain of causation. Let's go back to the 1960s, when the Great Inflation began. We had loose money, fiscal stimulus and fiat reserve creation via the IMF's Special Drawing Rights in 1969. Lyndon Johnson closed the gold window in 1968, Richard Nixon imposed wage and price controls in August 1971, and by March 1973, currencies went to their present "floating" system.
All of these occurred prior to the first oil shock, which began in October 1973. Most occurred prior to the 1972 grain rally, which was caused by the Russians buying huge amounts of our grain and later by the failure of the Peruvian anchovetta catch.
We had inflation well before we had the first commodity shock. And yet most people believe the opposite, that higher commodity prices caused inflation. Inflation preceded the collapse of the Bretton Woods fixed exchange-rate system, and yet most people believe the opposite, that the collapse of Bretton Woods caused inflation.
If I were to shock a given market today, say gasoline with a reprise of 2005's hurricanes, I would not expand the supply of money relative to the supply of goods and services; no, I would contract the supply of one good and have to transfer spending from other goods to that good. Yes, the gasoline component of the CPI would rise, but that's simply keeping score on the fixed-basket index we use for CPI calculation.
The links between commodity prices and monetary policy are pretty poor. Between August 2007 and June 2008, everyone but me attributed the rise in commodity prices to the Federal Reserve. After June 2008, the Federal Reserve became more aggressive, but the prices of commodities fell in response to the global economic contraction.
Go back to the grain rally of 1988, induced by a drought. The Federal Reserve was in a tightening mode then. Were we in an inflationary environment or a supply shock?
To keep the treatise short, I think you and I agree we are running a risk of forward inflation. I am willing to attribute the rise in various industrial commodities to a rebound in macro demand.
Position: None
A laundry list of the stock picks and pans from the Value Investing Congress in Pasadena last week.
Also, reading lists from Blue Ridge (Griffin) and Passport (Burbank).
Position: none
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Jason Schwarz
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| 4 Potential Solutions For Etrade |
5/11/2009 3:09 PM EDT
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With Etrade being one of the last financials still priced at distressed levels it is worth taking a look. I am not worried about dilution for this stock because the positive precedent has been set; dilution is a good thing if it takes the threat of bankruptcy off the table. Read my 4 potential solutions for the company by clicking here.
Position: long etfc
I sold my Ultra Qs (QLD) trade from this morning. I still hold a smaller position. As always, the QLD have a short term holding period.
Position: QLD - long
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Gary Morrow
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| Dish Network Breaks Out |
5/11/2009 3:22 PM EDT
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Dish Network (DISH) is up sharply following its first-quarter earnings report.
Today's 18% surge began with a powerful gap higher open that easily pushed the stock above its 200-day moving average for the first time since November 2007. Volume on this ramp is running extremely heavy and will be the heaviest positive day for the stock since late 2007.
DISH Daily (Nasdaq)
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TradeStation |
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The breakout move today continues an impressive run that Dish began in early March after a successful test of its 2008 lows. The stock spent very little time under $9.00 while bottoming out eight weeks ago. Since Dish turned higher in the second week of March, the stock has traded in a narrow channel. This rally carried the stock 80% higher prior to today's big jump.
At this point, the stock is overextended but, in the process, has left behind strong support. A light-volume pullback to the $16.25 area, the stock's 200-day moving average, would be a good spot to buy. This support area also includes the previous monthly highs of $15.50. A short-term base following a low-volume sell off would be healthy for the stock now that its current rally has more than doubled the stock's price.
Position: No positions
Still impressive into the close.. And i think that the OIH could get be worth watching as it could trade down to a lower strike on ultra pressure whihc hasbeen RELENTLESS today...
Position: none
Scaled into some American Express (AXP) for a short into tomorrow's session. Was considering FedEx (FDX) and Fortune Brands (FO) as well, but held off.
Position: short AXP
It appears that Meredith is in the same mode as I am regarding the financial stocks. She believes that the 2010 and 2011 receovery estiamtes are way too high for most banks. I wonder if Buffett is buyind all his bank longs on the equity offers. Didn't he do his own stress tests and conclude that his longs didn't need to raise capital?
Position: none
The very bearish comments by Meredith Whitney on CNBC this afternoon seem to be in direct conflict with Ben Bernanke's comments last week, that the US banking system will avoid a Japan style malaise, since retained earnings within the banking system will eventually restore capital and the virtuous cycle that Chris Atayan has talked about will be renewed once again. In other words, from reading Bernanke's comments on Bloomberg, it sounded like the Fed will do everything in theor power to get the banking system generating retained earnings to assist in capital restoration, which would be in direct conflict with Whitney's comments this afernoon. Certainly we can point to the positively sloped yield curve as one way earnings will be "assisted" by the Fed. TALF may be another, although one reader wrote last week that TALF will only be successful if consumers starts borrowing. Somebody will be wrong here, and I bet it wont be the Federal Reserve Chairman.
Position: underweight banks and financials, waiting for the pullback
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Dan Fitzpatrick
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| Inflation Causation: Two Sides of the Coin |
5/11/2009 4:06 PM EDT
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Howard, you make some great points and I cannot disagree with any of your points. We are in agreement that the risk of inflation is in front of us.
Certainly there are many factors that dictate the price of goods other than monetary policy. If only the Fed could just turn the spigot on and off as a method of manipulating the economy, life would be much easier.
But it seems to me that inflation can arise from two distinct dynamics. If I am understanding the points that you make, we are each looking at separate dynamics. Increasing demand (e.g., the "Russian Grain Grab"), or decrease in supply (the devastating impact of El Nino on the anchovy industry in 1972) would have a positive impact on prices. But the other side of that coin is a weak dollar. Absent any change in the supply-demand curve, a weaker currency causes a nominal increase in prices.
I am not looking at the inflation picture through the single lens of monetary policy. I also understand the anticipated increase in demand that you are pointing out. When taken together, I think it's not a question of "if"; merely a question of "when."
So we're probably in agreement on much of this. You just sound (because you are) a lot smarter than me. LOL
Position: none
Dan, the dollar/inflation relationship's also full of surprises. Exporters often take lower margins to maintain market share; this was true for Japan in the 1980s and for China today. And we have to distinguish between expected and reported inflation; the yuan contributes to reported inflation but largely is ignored by the TIPS market.
Once again, we can go back to the 1980s, home of the huge dollar rally between 1981 and 1984 and bust between 1985 and 1988. Inflation fell during the dollar bust even though the Federal Reserve was more than easy during that period.
The dollar's exchange rate is a function of relative expected inflation, relative prospective asset returns and, lastly, financial flows. We could be running high inflation and see the dollar weaken if other countries were running even higher inflation. Once again, we should be careful in ascribing a direct causal relationship. The concept of a weak currency leading to higher inflation makes intuitive sense, but really does not show up in the data very well.
Position: None
News that Ford (F), Anadarko Petroleum (APC) and Bank of NY Mellon (BK) are raising some major coin after the bell! Will be looking for potential more short ideas with "sewer cap" eyes!
Too many companies going out the same "secondary" exit door again can't be good for the short-term bullish side as we witnessed this phenomenon today affect stocks in a negative way.
Position: none, but patience on looking for short ideas may start to pay off here.
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Jeff Bagley
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| Secondary Offerings: Don't Forget the Bullish Side |
5/11/2009 5:17 PM EDT
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While the large secondary offerings do increase the supply of stock, leading to some short-term overhang, we shouldn't forget the bullish interpretation of events.
The capital markets are now wide open after being essentially closed for months. Companies -- even the ones with lots of hair -- are now able to raise money. The bankers are very busy with all of these spot offerings, and many of these deals have been oversubscribed. The deals have been working, with lots of folks -- investors and bankers alike -- making money.
Investors appetite for risk has increased rather dramatically, and that's exactly what we needed to get out of this mess: increased demand for risky assets. The Fed's strategy is working, and that's bullish. (Even though I'd really like to see more of a pullback for better entry points!)
Position: N/A
Agree loosely on the bullish side, but no need to be a hero in the group.. no secondaries in tech, just bond deals to buy more stock back! APC is very strange given how adamant they were about how good their balance sheet is. Wonder who is next in the patch? Of the ones i like the best tonight it is handily BK but i would buy APC on a hit..
Position: none
Unfortunately, I had to disagree that the levered ETFs are having only a negligible impact on Apache (APA) or Devon (DVN). The two inverse leveraged ETFs Proshares Ultra Inverse Oil and Gas (DUG) and Direxion 3x Daily Energy Bear (ERY) have barely $200M in assets between the BOTH of them. Apache and Devon combined barely made up 5% of the index that these leveraged ETFs seek to replicate on a daily basis. The market caps of both APA and DVN are over $25B, and they trade an average of 5M shares a day and 7M shares a day respectively while DUG averages 12M shares and ERY averages 1.2M shares; therefore, the two inverse leveraged ETFs account for about 4% of the average daily traded shares. The simple selling of IYE and XLE have a much greater impact and effect on the prices of APA and DVN, specifically the XLE which drawfs the IYE, and all the leveraged ETFs combined that are associated with APA and DVN. I think the bigger issue there is with the weak dollar, volitility in the oil and natty gas area, as well as two stocks that have been volatile over the past 5 years.
Position: short ERY
To clarify my last post, (as I got bitten by the ubiquitous double negative), even if one considers all the relevent arguments about the distortions applied to the underlying equities by the levered ETFs, in this particular instance the effect of those impacts is negligible reletive to the volumes and NAV of the two inverse levereaged ETF's
Position: Long mondays, short weekends...but not by choice
Here's the problem, Tim, with your analysis, which is rational as all get out. The problem is my sources. When i have sources who want to take down various stocks they take then down with the common--buy puts, short stock without uptick--and they then come in flying to the etfs. I read you and i think, sure, absolutely, but then i know what my sources are doing to knock down stocks and your arguments turn disengenous. Surely you should be right in theory, but my sources have had tremendous success in destroying stocks using methods that you would say in theory dont work. That's the disconnect...You are right in theory but wrong in fact.
Position: none
There is no denying that volatility seems to have increased with the proliferation of these leveraged ETFs, and I agree it is a bad thing for long term investors. Excess leverage and excessive speculation in general, in my opinion, are both bad for the market and investors. The leveraged ETFs are one example of this, but there are many others. We did have an enormous tech stock and internet stock bubble ten years ago before these ETFs existed, and it also crashed violently. So they are not the root of all evil in the market. They are just one of many problems that need to be corrected if we're going to move the market away from being a casino and back to something more like real investing.
Position: none
All I want to say about Leveraged ETFs is that if anyone on this site knew the late John A. Mulheren, what do they think he would have done if this technology exisited in his era? Anyone who was around then and active on the street knows exactly where I am coming from on this.
Position: None
Good evening. Great conversation today about the ins and outs of inflation/deflation with Howard Simons, Ron Insana and several others here. Would love to seem more of that type of idea exchange in the coming days.
I've just posted a video entitled Gaming the Gaming Stocks, which analyzes LVS, WYNN and MGM.
Also, I received some pretty enthusiastic feedback about this weekend's free video illustrating how to use technical analysis scanning techniques to find winning trades, so I am re-posting that link in case you missed it.
Have a great evening.
Position: none
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