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1. Treasury Auction
By Christopher Grey
9:21 a.m. EDT

I think the unusually poor results of the Treasury auction yesterday should have been bigger news. Weak demand for Treasuries and higher yields have far reaching implications for the markets.

On the bullish side, the very steep yield curve historically means that the economy should be recovering. On the bearish side, higher long-term interest rates will start to compete for capital with stocks and other assets. It is ironic, but not unexpected, that long-term Treasury yields have moved substantially higher since Ben Bernanke announced that the Fed would monetize the debt by purchasing hundreds of billions of dollars of Treasuries in an effort to keep yields low. Historically, attempts to monetize sovereign debt have always led to higher interest rates except in Japan.

From my perspective, widespread price deflation is now off the table. That is good news, but the stagflation we're going to get instead is not really so much better.

2. Gilead's News
By Justin Ferayorni
11:20 a.m. EDT

I don't have any strong opinion on Gilead's ( GILD) Darusentan data. In fact, if a few cardiovascular events ends up being the "worst" news with the data, I suspect GILD watchers will debate this until the FDA renders its decision -- and I'd argue those opinions are shots in the dark.

We'll never see the full data package, and we don't know the label GILD will get with the package ahead of time. I'd remind everyone who is interested that Darusentan is being used in uncontrolled hypertension patients. This drug may still yet have a place in the treatment paradigm.

Of course, if the data worsens or the drug is given the thumbs down, the debate will morph into why GILD bought CV Therapeutics ( CVTX).

What I would point out is that as we approach the low $40s, the issue becomes moot -- the HIV franchise will continue to chug along. Darusentan becomes a call option.

Position: Short GILD 41 puts

3. Big Winners from Stress Test
By Eric Jackson
12:30 p.m. EDT

Earlier this week, I said I thought that Fifth Third ( FITB) and Huntington Bancshares ( HBAN) were my favorite banks going into the stress-test results. They've been the best bank performers today -- up 57% and 45% respectively today and more for the week.

I've sold my FITB May $6 calls this morning but rolled some of that profit into August $17.50 calls, as I see further upside ahead. Put me squarely in Jim's camp on financials vs. Doug's (at least with respect to these smaller regionals).

For these two smaller players specifically, yesterday's news takes away the fear of highly dilutive future offerings. Yes, the risk of a drop in commercial real estate but that is countered with the potential for consumer mortgage re-fis continuing as we saw earlier in the week with FITB. What yesterday's results showed is that Midwestern regional banks were much better positioned than those in the Southeast (although FITB has its share of Florida exposure). This makes me less concerned about the commerical real estate shoe dropping in that part of the country.

Position: Long FITB

5. OM Group (OMG) Is a Specialty Chemical Company That's Too Cheap
By Eric Jackson
1:12 p.m. EDT

I've taken a long position in OM Group ( OMG). OMG operates prdominantly in two segments: Advanced Materials and Specialty Chemicals (especially used for memory disks and circuit boards). It is a big cobalt refiner, so the price of that underlying commodity is also a driver on the stock price.

It's a conservatively run company with $272 million in cash and only $26 million in long-term debt. It's most recent quarter, announced yesterday, had a small loss. However, it's expecting to stay cash flow positive this year and a weaker dollar, recovering commodity prices, and increasing chemical demand (with Dow's recent earnings being encouraging) should all help the company's future results.

The stock sold off yesterday and has bounced back today. In my view, there's still a lot of value here. The stock currently trades an a trailing 2.2x Enterprise Value to EBITDA ratio. That's just too cheap, when you consider Dow Chemical's ( DOW) is currently 7.4x.

As OMG delivers future positive quarters, expect its stock price to jump.

Long OMG

5. The Invisible Pullback
By Paul Rubillo
2:02 p.m. EDT

It looks like the auto parts retail plays may be on the way to a mini-correction. The following names are on my radar to track, AutoZone ( AZO), O'Reilly Automotive ( ORLY) and Advance Auto Parts ( AAP). These plays have showed signs before, as I had been watching AZO around the $160 level a while back.

Waiting for some openings on the short side, while the rest of the longer-term long ideas we have been adding since the third week of March stretch their legs a bit more.

No positions

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