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Buzz Bits: Dow in the Red, Nasdaq Higher in Green


Your daily Buzz highlights...


Editor's Note: This is a small sample of the content available on the Buzz and Banter.

Earnings Report - MV News
  • Medtronic (MDT) reports 2Q EPS of $0.59 vs. $0.56 cons on revs of $3.08 bln vs. $2.97 bln cons.

Set out runnin' but I take my time... - Todd Harrison - 3:20 PM

he manic merger Monday is limping towards the turkey and if today's any indication of the excitement of the holiday week, I'm contemplaing a "long ESPN, short CNBC" position into Thursday. Some top line thoughts...

  • We're seeing a bit of the anticipated post-expiration hangover now that the November puts are sub-sod. Hoofy will (correctly) note that any action above S&P 1390 is a healthy and necessary "base."

  • On the heels of Vail, we noted that three things must occur if the bovine were to enjoy a year-end run. The homies must lead, internals must be strong and the financials must participate. Those three "tells" remain on my radar, particularly as HGX 200 and BKX 114 are within spittin' distance.

  • If there are any questions regarding whether or not I'm "name dropping" for the December 1 event, let me be clear---"Sure!" If the top minds in finance--or all-pro devensive ends, or hall of fame running backs, or seven foot centers---are gonna help drive attendence and raise awareness of this charity event, I'll put aside my pride and do what I must.

  • A few Minyans have pinged to ask "where have you been?" Ahh, the caveats of a few missed days of the Buzz. The answer, as many of you know, is "on the road." After 10 cities in two weeks, I'm happy to be home and settling back in the flickering track. I will, so you know, be traveling a bit more (tomorrow afternoon) as we tie together some important behind-the-scenes situations but take me at my word, I'll be done as soon as I possibly can. Traveling like this is not my definition of fun.

  • I hope this finds ye faithful well and getting ready for the important stuff. I, for one, am pretty jacked to spend Thanksgiving with the Margarita Maven (who is in town for Ruby's first soiree). Fare ye well into the bell.


Vol Baby - 3:12 PM

The last time I saw option prices this cheap was for a brief period late in 1993. Three months later the SPX had corrected 7%.

The time before that was 1987.

That doesn't mean it will happen again. I do not have a crystal ball. Maybe the world is different now. But I don't believe that.

Cheap options have high gamma, which is like leverage. When people sell options they are selling a contingent liability, so they sell more than they really should. When a market is levered it will move more than when it is not levered.

Cheap options also indicate complacency. High speculation is like complacency.

Ironically, current actual volatility is low because people are selling options in droves. There really are no buyers left of options. I was the last. I am still long options but I cannot buy any more.

With the deluge of option sellers those like me trade the gamma which compresses the volatility even more. This encourages more option selling and the market becomes even more compressed. Things begin to look more and more sanguine, but all I can tell you is that the potential has now grown enormous for pent up volatility.

I sound like a broken record, I know. Perhaps this pent up volatility will never manifest, but if it does at this point it will be uncontrollable.

Knock Knock... - Bennet Sedacca - 2:15 PM

Who's there you ask? Or have I just lost my marbles?

See the chart here. As I stated in my Goldilocks and Three Bears piece earlier today, the stock market and bond market are at serious odds. A curve this inverted for this long is usually negative for stocks. I stress usually because we are indeed in interesting times with much of the leading economic indicators coming from liquidity. And with so many deals du jour, I am tired of hearing about them.

But you see this huge flag pattern? It can be resolved in two ways.

1. A breakout, which would mean more inversion unless 2's rallied as well which would mean a Fed easing. Or...behind door #2...

2. A breakdown signaling inflation fears and a steepening of at least flattening curve.

In any event, in my book, with stocks or bonds are mispriced, it is why my firm is being so careful with OPM these days. They are different than anything I have ever witnessed and have always operated under the 'never trade just to trade' belief. And if not 100% sure, back off and play small. Which is what we are doing.

Position in treasuries

Copper, Gold and Silver - Kevin Depew - 11:52 AM

The imminent demise of copper, gold and silver will have to wait a little longer it seems. As we noted last week, all three remain "OK" in technical terms on their PnF charts.

Front month copper has room to 3.16 before meeting serious resistance and long-term trendline support at 2.96 remains intact.

Gold remains on a PnF buy signal and support so far has held firm above the critical 612 area with next resistance at 636. A possible move to 612 continues to be cause for concern (if/when). See the chart here at

Silver is back testing 13 resistance. A move to 13.25 would be an important new buy signal.

EOP Sale: Top of the Market? - Brian Gilmartin - 9:45 AM

My first thought this morning as I saw the headline that that Sam Zell had sold his Equity Office Property (EOP) REIT to the Blackstone Group was, "That's it: that is the top in the REIT market."

I got to study the REIT's and Sam Zell's EOP and EQR in particular in the early 1990's as a fixed-income analyst working for a mutual fund firm, the REIT's started to diversify their capital sources after the equity IPO boom, and started issuing investment-grade bonds. However, because the sector and the asset class had been for the most part private (i.e. absent from the public capital markets) and subject to the "art of the deal" so to speak (i.e. transactional, rather than operationally driven), I felt that the primarily BBB and low Single-A credit ratings assigned to the majority of the REIT debt issuance (regardless of the property type or geographic
dispersion) were too low relative to what they should have been rated. (Rating agency credit ratings are driven by default models based upon frequency and severity loss history, thus I felt that the entire asset class was being under-rated and offered excellent credit spreads relative to the risk, given REIT's rather dubious history.)

The point is that Sam Zell had acquired most of his commercial and residential properties for EQR and EOP during the RTC commercial real estate bust and subsequent RTC liquidations during the late 1980's, and bought the properties at true "value" prices. (Zell is legendary for being the penultimate "vulture" investor.)

So with today's sale, you have one of the classic, vulture, real-estate investors cashing out of his commercial real estate properties.

What would you conclude?

(Unfortunately my firm sold the last of our REIT's held within client accounts in early '05. Much too early.)

No positions in stocks mentioned.

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