Buzz on the Street: How Do You Like Them Apples?
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
All day and every day, some of the stock market's best and brightest traders and money managers share their ideas, insights, and analysis in real-time on Minyanville's Buzz & Banter. Below are some excerpts from this week's Buzz. Click here for a 14 day free trial.
Note: Some links may require Buzz subscriptions.
Monday, November 5, 2012
Fifty Votes of Grey
Maybe it's just me, but I can't recall an election where pundit after pundit was exploring one "what if" scenario after another.
Talk about obsessing on uncertainty.
So why do I raise this?
As a socionomist, I believe that our level of confidence transcends all human behaviors. The fact that we now have extreme political uncertainty fits perfectly with a world in which we have extreme economic, meteorologic, not to mention cultural (as in Homeland) uncertainty too.
Thanks to weak mood, grey is the new black and white.
And I'm sorry if I disappoint folks, but unless mood improves substantially, little is likely to change with tomorrow's election.
Facebook Will Surprise many
Facebook (Nasdaq:FB) is one of the best high volume liquid day trading stock to come out in years. It is an absolute jewel, especially the first 30 minutes, if you have the chops and don't get greedy. But not everyone is geared for this type of trading or even wants to go there.
Not to worry, the chart is also painting a very bright future for longer-term holders. An inverted head and shoulders pattern, a retest of earnings breakout trend line holding, with an eventual target of 31.50. Yes, we have the well know 11/14 event, but I would not be surprised to see the stock 10% higher from here when that occurs. Higher lows on each one of these lockup expiration is going to get the animal spirits going and we should blow past the post earnings high of 24.25 once we clear those final hurdles.
Click to enlarge
An Eventful Week
Someone recently pointed out on Twitter (I would credit if I could) that there seems to be a scarcity of signs supporting either Presidential candidate.
During the last election, Brooklyn was jam-packed with pro-Obama signs (with a few McCain signs sprinkled about) on lawns, porches, and store fronts.
This time around, I see nothing. I saw one pro-Romney sign in my neighborhood, and nothing else. All the other political support is towards candidates for local office.
What does that say about the general public's faith in our candidates?
If you're seeing something similar/different in your community, feel free to email me at firstname.lastname@example.org.
Tuesday, November 6, 2012
SPX View: Presidential Statistics
Here is the history of the S&P 500 (^GSPC) cash index, for the five days following the U.S. Presidential election after 1980.
Click to enlarge
NLY Mess Bleeding Into Other mREITs
Annaly Capital Management (NYSE:NLY) reported earnings last night, missing lowered estimates and collapsing interest margins. This morning it is down more than 3.5%. Many of the other mREITs including American Capital Agency (Nasdaq:AGNC) are also down 1% in sympathy. Three weeks ago, NLY arrested their decline by announcing a $1.5b share buyback.
NLY is particularly representative of the unintended consequences from the Fed. NLY's portfolio is made up of 93% agency MBS, what the Fed is targeting for its MBS side of the QE3 program. It highlighted specifically the troubles it faced due to the Fed's program in its release. While not exactly a new development, it appears that the damage is everything that we previously feared.
Something interesting came up on their conference call. The vice chairman noted that the principal payments they receive on their holdings (and interest), they have both the option of reinvesting this into new MBS or buying back stock. This may be a new trend we see, where rather than taking the loss on reinvesting into lower coupon MBS, they'll simply buy back the stock. Its akin to a hedge-fund returning investor capital, or a bank returning depositor money. In some cases, NLY is reinvesting a 5% coupon into a 3% or less. The other issue is that NLY is trading below book value, the reason is that the market does not believe NLY can continue the 13%-14% dividend it is currently paying. A true dilemma.
If the curve started to flatten (doubtful,) things would REALLY get interesting.
Some interesting factoids from the call:
-Annaly realized a 20% CPR (prepay speed on mortgages) from 19% last quarter. This is a lot higher than you would expect, given that a current FNM 4.5 has a CPR of 28%. The CFO made it sound like they own 15y vs 30y MBS, and CMOs.
-Principal prepays were at $10b, up from $8b last quarter.
-Vice chairman notes on the election, "if Obama wins, we potentially see more policy meddling. And there could be the point at some time where you actually see assumability of mortgages... I could see them instituting a policy that would make it so that people could still move around and maintain a very low coupon mortgage"
-The call also covered their comments on the state of the repo market. The company is able to lock in their short-term lending for longer periods now, at much more advantageous rates.
-The CFO believes that there is a "ton of cash on the sidelines" waiting for the right conduit to invest in, and the uncertainty of the fiscal cliff/presidential election to subside.
B to the B
Gold and silver have exploded in the last hour with Silver (NYSE:SLV) rocketing off its 200 dma in the spirit of Train Tracks on its dailies.
Is the market anticipating more Ben with a Barack win?
The market likes free money the way drunks at a bar like free whiskey, but to paraphrase the Maestro, is there anyone out there that thinks we'll get out of the hole we've dug ourselves without pain?
Wednesday, November 7, 2012
VIX Futures Halt Is a Warning Sign
A week after the Chicago Board of Options (CBOE) announced record trading volume in its VIX based futures contracts for the month of October, those futures and their related options had been halted for trading at midday due to "system problems" at 1:40. Trading resumed about 40 minutes later at 2:15 ET with little damage done.
But I think if this had occurred earlier in the day near the opening you would have seen a ripple effect as those, man and machine, looking to hedge or get protection using these volatility products might have turned to even more aggressive selling of index futures such on the S&P 500 (^GSPC) and Nasdaq (^IXIC) potentially triggering something of a flash crash. Take this as a shot across the bow that another such incident seems inevitable as the markets have ever increasing volume in complex derivatives that might not behave the way they are expected during times of market stress.
Late yesterday afternoon, I did something that I rarely do; I juggled cats. No, no -- that was last Tuesday, sorry! There's a lot going on these days--sorry for the confusion; wait, I got it....
Four Mo Years!
I shared a midday vibe from the Buzz on MV Proper because I felt it was an important column for those looking to snatch acorns along the path of maximum frustration. Positioning into the Presidential Election, posted at 2PM EST, chewed through the positives and negative dynamics in the marketplace and arrived at the following conclusion:
"My sense -- and it's just a sense -- is that odds favor a downdraft tomorrow.
How much conviction do I have? Enough to share (all a man has is his name and his word) but not enough to slap bank on the table.
With a Nor'easter on the way and a powerless house in the burbs, my focus needs to be on my family and my business -- in that order -- with my P&L a distant third."
This foresight was in part predicated on the following rationale, as shared on yesterday's Buzz:
If Obama wins, markets likely sell-off. If Romney wins, initial reaction will likely be higher. If the race isn't decided by tomorrow morning, markets will sell off. Given the almost 3-1 odds on Obama winning (72% probability on In-Trade), that would seemingly provide an advantage to the bears heading into tomorrow.
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