Buzz Bits: The DOW Rebound
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If the stock market is so great, why do utes act so poorly?? - Bennet Sedacca - 2:47 PM
Rhetorical question in my book. Our hourly signals in 10's and 30's have just turned negative within a whisker of support. Just a matter of time now for 'em to break. And, no, you won't be able to get a good bid if they do. You will be in a long line of sellers.
The only thing that can save it (if it happens) is if there is a false breakdown, or 'spring,' in the words of Richard Wycoff from the 1920's. A false breakdown that reverses back into range could pound a lot of folks that got stopped out.
Waiting...........for that BennetSuccoFest in a few hours. Should be quite the time.
Position in treasuries
Risk/Reward - Vitaliy Katsenelson - 2:20 PM
Telecom New Zealand (NZT) has declined since I wrote about it awhile back. Though the thesis I laid out is still in place: broadband and wireless revenue growth are offsetting the decline of long distance and land line businesses, cash flows are growing and it keeps paying a nice fat dividend. However, the political risk that was dormant in the past has surfaced, threatening either increased competition or forcing NZT to spend more money on infrastructure.
Politicians are threatening to open NZT's networks to competition. This doesn't make a lot of sense on many different levels. The New Zealand market is not big enough for a lot of competitors and its geography is very challenging.
Politicians are in the business of being reelected and media are in business of selling advertising, thus the cold logic may or may not prevail. I believe this risk most likely will blow over; however, I will not be increasing my position in the stock. My firm and I already have a full position and the stock has declined for the right reason. I am not losing sleep over this situation but I don't see any reason to increase my risk exposure.
Position in NZT
Eye-Openers - Sanjay Somaney - 2:12 PM
I just updated our ADR2LP models and the following our the premuims/discounts as of today's closing prices in India and intra-day prices here:
TTM- (61 bips)
So among Indian IT/Software/BPO, INFY is cheapest at the moment and that is understandable given its earnings were the least inspiring of the lot. SAY had the best results and is close to the highest premuim multiple. The two telcos are languishing with VSL actually trading at a discount here versus local shares. Also surprising, despite fantastic news flow from RDY, the ADR's actually trades at a discount out here.
Pretty eye-opening, no?
The conversions have been done at the current FX rate of $1=INR 44.29
Position in all
"That Kangaroo stole my golf ball!" - Jeff Macke - 12:58 PM
My best Mate, OD just coaxed me into agreeing to join him for some golf and sun down under the week after next. As obsessive Minyans may recall, that week is also when the "Playboy Charity Golf Tournament featuring Rick Schottenfeld (though not Jeffmacke)" is being held as well. Like Al Capone's Valentine's Day visit to Florida, what could have been a schedule conflict now becomes a useful alibi.
In other news...
- It took 10 minutes of phone-tree and hold time before I got to a living person at the United Airlines (UAUA) international 800 number. Together this live-person and I spent 30 minutes walking through the endless permutations of ticket pricing options, looking for one which would allow me to upgrade.
It's good to see the airlines getting back to business as usual.
- Oh great, a real-live Shrink joins the Ville just as I'm sitting down to write part 2 of my "Guys Wide Short" series. Now I'm going to feel all self-concious about the Kissenger lap-dance. "Welcome, Doc! They are all lying about me."
- Finally, those of you who subscribe to the WSJ, be sure to check out the article on WalMart (WMT) adopting a 2-level store model. I was checking out the shopping cart escalator in the downtown Minneapolis Target (TGT) store last week. They are the best Super-Obvious-In-Retrospect idea since they started making man-hole covers round.
"Did you ever see that "Twilight Zone" where the guy signed a contract and they cut out his tongue and put it in a jar and it wouldn't die, it just grew and pulsated and gave birth to baby tongues? Pretty cool, huh?" --Garth Algar, Wayne's World - Todd Harrison - 12:43 PM
It was a matter of time before the question was posed: What if the post-bubble "malaise" was a simple pause in a much grander bull market?
It's hard to argue against that point with the trannies, financials, small caps (and numerous other indices) at or near all-time highs but, alas, I will. While I may be accused of reactive rationalization, I don't think we can have this conversation in a vacuum.
Indeed, with the dollar down 25% since 2002 and debt at historic highs, I would argue that we've simply shifted the bubbles to a less obvious arena. And to truly understand where we are, we must also appreciate how we got here.
Position in financials
Really, really ridiculously good looking... - Tom Peterson - 12:33 PM
Our last update on American Eagle Outfitters (AEOS) was on Jan. 11th. We recommended raising the defensive stop, and forecast it to get above the 200-day m.a. It has done that today with gusto.
Note how the stock just consolidated in a trading range from about mid-January - this is the ideal way a stock should work off an overbought condition. The MACD and RSI also only got back to neutral during this pause - again this is ideal. The move today has now satisfied the nearest point & figure objective of $27 to 29 (Chart linked below). The next phase count yields an additional 6 to 7 points of potential. If it is fulfilled that would mean $33 to $36 is possible.
However, near term AEOS is coming up on a considerable challenge from resistance between $29.39 and $32. It will be in an overbought position around $30. It is not in an overbought condition yet and it has good money flow so we would not be surprised to see it attempt to at least chip away from that resistance. As long as it can hold the trend channel it should be okay, so stops can be raised there. It would be best if pullbacks were on limited volume and stayed above the 200 day (now at $26.31).
Click here for stock chart
Click here for P&F Chart
Position in AEOS
Debt Repudiation: The "Fantasy Scenario" - Kevin Depew - 11:33 AM
Minyan Scott yesterday afternoon sent me a link to an interesting question recently posed to MSNBC columnist John Schoen about credit card debt. The question: "I'm not an economist, but a fantasy scenario crossed my mind and I've been trying to puzzle it through: What would be the long-term effect on our economy if all U.S. credit card debt was paid off?"
Schoen says, "If people suddenly stopped all "discretionary" spending to pay off their credit cards... that would not be a good thing. "
His answer looks at what would happen if consumer debt (a "bit" more than $2 trillion) was repaid immediately. The reality of that question is moot. What is more interesting to me is that the "fantasy scenario" of debt cleansing and repudiation is increasingly entering the mainstream. Even Oprah is talking about it. In an economy leveraged to consumer spending, it does not take repayment in full to "complicate" things. It simply takes a reduction in the current rate of consumer spending.
"To many observers, the current rate of American savings seems dangerously low – and debt levels dangerously high. But we've heard the same warning several times in the past few decades. And the U.S. consumer, and the economy, seem to find a way to keep on going," Schoen says.
The consumer has somehow found a way to keep on going only because the social mood has not shifted against consumption in favor of savings. My argument is that we are beginning to see that shift in social mood now.
Running the Numbers - Jason Roney - 11:10 AM
March has marked some important turns in the past. Of course, the most notable of recent years are March 2000 and March 2003. Running the numbers shows a generally positive bias from now until March expiry and somewhat negative bias from then until the end of month.
Mini-Minyan Mailbag - John Succo - 10:35 AM
Prof. Succo -
Although i have only been a short term subscriber I have learned a tremendous amount in the last few months. Thank you very much for your hard work.
Question: There is a company I follow that just released financing news via a private placement of Senior Convertible Notes. Now, I understand how a secondary works normally with a set pricing but I am a bit confused with regard to the Notes as they seem to be priced way above the stock price. This is a link to the news.
I think you are referring to the premium, or strike price, being 25% above the current stock price. This is normal pricing. There are warrants attached to this deal. When we look at the overall
structure, we view the deal as fairly valued:
Fair volatility assumption: 40%
Credit spread over treasury: 14%
Borrow cost: -4% (normally this is positive, but the short interest is high, so the rebate is negative)
Theoretical price: 95
Warrant value: 8 (this is the value of warrants Attached in bond equivalents)
Total Value: 103
Market Price: 100
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