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Buzz Bits

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Countdown to year-end

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Over Under - Adam Warner - 2:36 PM

Big option surge in Under Armour (UARM) today, as the new mo-mo pup makes yet another new high. Volatility has now hit the 90's, double the level of 3 short weeks ago.

It is not the easiest or sanest name to trade in that it is only listed on two exchanges. In addition, you can't borrow the stock. Still, it's worth taking a peek as it is about the only option product in motion lately.

position in uarm

Inquiring minds . . . - Fil Zucchi - 12:36 PM

I have been going over energy names over the last week to see what I would be interested in adding to should the group take a good beating. On a "superficial" level I've made my list (not checked twice yet). What's nagging me is Chesapeake Energy (CHK). This is no hidden name. To me it looks like a good company, the stock is reasonable (given certain assumptions about the underlying commodity prices), but it certainly does not make me feel like I've discovered the next Microsoft (MSFT). Yet, every other news headline seems to be the announcement of another insider purchase; primarily by the CEO, but today we know that the President also snapped up 25,000 shares.

I am tossing this out to all Professors and the Minyanship: what do these insiders see that the "numbers" don't tell?

Position in CHK

Flashback! - Bill Meehan - 12:30 PM

This day in market history...

  • Closing levels 6 years ago as we crept toward Y2K were
    o DJIA: 11,484.66
    o S&P 500: 1463.46
    o Naz: 4041.46
    o Crude: 26.41
    o Gold: 290.20

This day in Minyanville history...

In other news...

  • In 1934, The first regular season college basketball at Madison Square Garden was played with NYU defeating Notre Dame 25-18, a real barn burner.

Homies bits - Fil Zucchi - 10:15 AM

The existing home sale numbers were basically as expected. The dark lining was the months supply for condos up to almost 6 months. That's a long time for those who bought for $500/sq.ft., convinced that they'd flip for $600/sq.ft., even before closing on their buy.

By extension homebuilders can't be too happy either. There are a number of projects in the Washington DC area - and in many major cities - that have broken grounds with hard cost budgets of $300/sq.ft. Throw in $75-100/sq.ft in land costs, interest carry and sale costs, and if you do not sell for $500/sq.ft. - and quickly - you got "issues".

Time will tell.

Position in homebuilders

The opposite of General Motor's (GM) pension liabilities is Lucent (LU) with a pension surplus - Phil Erlanger - 8:59AM

The Wall Street Journal wrote an interesting piece on Lucent in Wednesday's paper entitled, "Lucent's Profit Crutch-Pensions." Unlike GM which has an underfunded pension plan, Lucent's plan is overfunded and pension credits are driving earnings. A pension credit is the amount where pension fund income is greater than its expenses. This pension fund credit accounted for $1.1 billion of the company's $2 billion profit. This situation of pension credits should continue into the future for Lucent.

We note that because of these pension credits, sell side analysts are using a discounted cash flow method compared to traditional earnings models for Lucent. Short sellers have continued to add to their positions in Lucent over the past few months and now we have a situation where our short intensity is 74% with a short ratio of 5.19. Our technical rank is still lagging at 20% but if it improves then the potential for a short squeeze could be right around the corner.

Trouble in Pensionland - John Succo - 8:43 AM

A WSJ article reports that if General Motors (GM) correctly accounted for its pensions the necessary adjustment would wipe out the equity value of the company's stock.

This is old news, at least here in Minyanville.

But we have also pointed out that over the last ten years 20-30% of reported corporate profits have come out of company's pension plans. A CEO needs a penny to make earnings and goes to the pension manager to "adjust" the assumed earn rate on assets up. Presto chango the pension is suddenly "over-funded" and can release some "money" to show as earnings.

This has left many a pension plan under-water when reality hits, when the difference between obtainable returns and expected returns is recognized as unrealistic.

For example, IBM is assuming they can earn 8% on their pension assets, this with long bond yields 4.5%. In order to even have a chance at that, the pension fund manager must take more risk with the assets, like buy more stocks and hope the market goes up.

So just about everyone in our asset based economy is hoping the stock market goes up.

Position in IBM, GM

No positions in stocks mentioned.
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