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By Tim Melvin
9:46 a.m. EST
Once again, the Case-Schiller report shows that although real estate is declining slower, it is still declining. The rate of decline slowed to 7.3% year over year. On a month-over-month basis, prices were flat. Is is getting a little better, but still I would be reluctant to call a bottom.
If this price action was occurring naturally, I would feel better. It is not. We are throwing every kind of stimulus and tax break at the housing market those innovative folks between the rivers can dream up. We gave Fannie and Freddie a blank check last week to keep loans available to people who probably should not be eligible for one and prices are still declining.
2. Corporate High Yield in 2010
By Brian Gilmartin
10:07 a.m. EST
We just finished reading another negative article on high yield this morning in terms of the prospects for 2010, which is probably understandable, given the +50% return for the asset class in 2009.
That being said, I think how high yield performs in 2010 will be a function of whether higher interest rates are being driven by faster economic growth or just inflation.
The latest back-up in Treasury yields is likely being driven by the Treasury market factoring in a decent fourth-quarter '09 GDP growth rate (hearing +4% for the current quarter), and with that kind of growth, I don't see how high-yield spreads widen very much.
In fact, high yield may be one of the few places to hide in 2010 if the Treasury market has a difficult time, as many expect. One of our best trades in 2009 was to be heavily overweight credit risk on fixed-income and balanced portfolios. We've been debating that posture as we appraoch 2010, but credit and high yield in particular may turn out to be the best house in a very bad neighborhood (i.e., higher Treasury rates) in 2010.
Positions: Continued overweight in corporate high-yield as we near 2010
3. High Yield in 2010
By Howard Simons
10:30 a.m. EST
Brian, it's been a long time since we had a multi-year downturn in Treasuries, and that occurred during a very different macro environment than the present. During the Treasury bear market of March-October 1987, high-yield outperformed investment-grade, and stocks outperformed high-yield. Everything outperformed Treasuries.
That changed rather abruptly during the October 1987 crash. But I think it may be a good model for 2010. No reference to the crash part is necessary now. It may be, unfortunately, if short-term interest rates rise abruptly, but I do not think that will happen.
4. Pilgrim's Pride
By Tim Melvin
I see that
has emerged from bankruptcy is the new shares are trading on the NYSE at 8 bucks and change this morning. The company went into bankruptcy in December of 2008 as a combination of high debt loads, rising chicken feed costs and a weak economy forced them to see the protection of the courts. In an usually strong restructuring performance all creditors have been paid and the stockholders walked out with shares in the new company. In the majority of bankruptcies creditors get a fraction of the debt and stockholders get zip.
This could lead to higher prices in the years ahead for the chicken producer. I need to be spend a little more quality time with the documents but companies emerging from bankruptcy have historically outperformed the stock market for the next several years by a substantial margin.
Positions: None yet.
5. Consolidated Water Moving Higher
By Jonathan Heller
is up 5% today, on several times average volume. Not sure whether this is due to tax-loss selling, short covering (528,817 shares short as of Dec. 15), institutional buying ahead of quarter end, or a combination of all three.
Positions: Long CWCO
This article was written by a staff member of RealMoney.com.