Buzz on the Street: Fed Says No Taper, More Candy
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
Powering Up Facebook Ahead of Earnings
I just took down a small slug of Facebook (NASDAQ:FB) $48.50/$49.50 call spread for $0.51 ahead of earnings tonight.
The reason I want in is that Facebook's down about 9% off the highs on a general cooling off of the mega-super high-beta complex, as well as the Forrester report that called Facebook's ad operations a bunch of garbage.
Meanwhile, LinkedIn (NASDAQ:LNKD), Yelp (NASDAQ:YELP), Twitter (NYSE:TWTR), and Google all reported very strong ad revenues for Q3, including in mobile. Since Facebook doesn't issue guidance, there's reduced risk of the stock selling off on Q4 guidance, the way LinkedIn and Yelp are today.
The reason I don't want to buy common stock is because of gap risk. In the event Facebook somehow misses in the face of rising expectations, the stock's going to get smashed, which means waking up to an unpredictable loss. Check out the chart below, which shows that revenue expectations (source: Bloomberg) for this quarter have gone up quite a bit in recent months..
With this trade, my downside exposure is fixed at $0.51 per lot.
Additionally, I may look at the $49/$50/$51 butterfly expiring this week, which is a low-cost, low-probability, but high-payoff play on Facebook doing basically nothing post-earnings.
Click to enlarge
The Fed refrained from tapering monthly asset purchases, saying it will await "more evidence" before going forward with a QE taper. The Fed also saw improvement in the economy even with "fiscal retrenchment."
Added: "Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months."
Removed: comments on "tightening of financial conditions"
Bond prices are moving around some, but Fed Funds futures are still pricing in the Sep/Oct 2015 time frame as the first confirmed rate hike. The dollar is rallying. Our read is that it is a little more hawkish than what was expected.
Read the full statement here. And see a side-by-side comparison from Bloomberg here.
"Stocks are in a bubble."
"No they are not. Stocks are not alarmingly high."
As one who watches social mood closely, it is very interesting to see such open disagreement among rock star investment professionals. Like politicians and economists before them in this environment, we are now seeing open "zero sum - if I win you lose - thinking" among Wall Street titans.
Folks will say this doesn't matter, but confidence requires a consistent and coherent message. Just ask kids of divorcing parents about how confident they feel about the world.
Across politics and the financial community, I am seeing mounting incoherence.
In a world awash in liquidity, it may not matter -- until it does.
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