Buzz Bits: Dow and Nasdaq End Lower
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Of Buzz and Birds - Todd Harrison - 3:53 p.m.
As Mindful Minyans continue to care--and I'll tell you from the bottom of my heart, it's tremendously humbling--I'm trying to shake off some sadness and focus on the close. This too shall pass, I know, but the combination of sudden death and nary a wink of sleep is starting to catch up with me. I've got a 5:00 EST hit on FBN Happy Hour and then Phoebe and I are gonna do some serious hang.
While $80 seems intuitive and $75 likely, I'm gonna force myself to peel out of some more Schlumberger puts as a function of discipline into the close. I'm also gonna peel the Apple (AAPL), so to speak, as Winky Wright whispers sweet nothings into my ear. I could spend some time lamenting about covering Baidu (BIDU) too soon but I know two things. One, you never complain after making money and two, there is a marked difference between loss and loss.
Perhaps the most important thing I scribed today -- other than my tribute to the baby bird -- is the Phantom of Deflation vibe. We've long said that a higher dollar would be the death knell of all things "supply/demand" and while it's entirely too early to write an equity epitaph, it's certainly something to keep on our radar. For all we know, this is simply a "bull market correction" for commodities and a "healthy retracement" for stocks (above the double bottom). I'm not smart enough to know. I'm simply seasoned enough to respect.
Thanks again for the kind vibes. Minyanville is so much more than a financial platform, it's a community of human capital that sticks together and tries to do the right thing. You guys rock--and I mean that big time--if there were more Minyans around the globe, I would venture to say the world would be in much better shape.
May peace be with you.
Position in SLB
Stopped out of commodities - Ryan Krueger - 2:36 p.m.
A Texas sized tip of the hat to Toddo for his prescient put vibe he shared on commodities a few weeks ago when it counted, not after it happens. His instinct darn near the (or 'a') top was about as good as it gets in a market that's historically strong.
My answer to the question of tops is stops. I'm willing to give back a portion of dramatic runs higher with stops more than I'm willing to ignore my trading diary whose most consistent entry reads: "The strongest markets will go much higher and the weakest much lower than most will imagine." Using tight sell disciplines and outlawing averaging down trumps everything in my book.
So my firm gets stopped out in some commodities and can (and have selectively) even go short our best ideas, which is what can work for us. Not advice – just wearing it all on my sleeve. But to share a little context to this "plunge", let's use a very speculatively spiced soybean contract which just a few months ago considered "beans in the teens" to be a moonshot. Now it takes limit down days just to get us back down through 13, where it had blown through in February.
Click to enlarge
We are looking at 30,40,50 year historic lows on current inventories on food staples around the world guarded tightly next to rioting consumers whose appetites are growing faster than supplies.
But what if it's not different this time and hundreds of millions of people decide the middle class just really isn't for them? Stay tuned for that much needed perspective along with a few tickers to start peeling an eye toward, in an answer to questions about ETF's on Ags.
Those Pesky CDS - Mark Bloudek - 2:14 p.m.
When looking at the Bear Stearns (BSC) situation, I keep coming back to those pesky Credit Default Swaps (CDS). What I haven't been able to figure out is how many CDS are outstanding in BSC. This is a crucial question because there can be more CDS than actual bonds (we know there are approximately $44 Trillion in notional CDS outstanding). For those that are long CDS in BSC, there is a clear motivation for them to want BSC to declare bankruptcy so that the value of the long CDS position would increase in value. If there are many times more CDS than underlying bonds, then the CDS players (those both long and short the CDS) are the likely ones that are fighting for control over the shares.
The real interesting part of this is who holds the long and short positions on the CDS. Wouldn't regulators be very interested in this right now? I know I would be because if the long CDS players can manage to get control of this and vote the deal down, it very well could increase the systemic risk to the entire financial system.
For these reasons and others, I believe the CDS market is not an efficient way to operate a financial market/system. When the amount of bets (CDS) exceed the amount of the underlying bonds, all sorts of hidden motivations result and many of the motivations can/will be very damaging for the long term health of the system/economy.
Is General Motors (GM) next? Are we going to see those who sold CDS in GM give an uneconomic loan/credit to keep it afloat so a default doesn't happen? And the examples go on and on.
Rooo-tate!! - Fil Zucchi - 12:04 p.m.
All kinds of stuff going on beneath the calm surface of the indices.
- Last week I swapped out of my China index puts and into the ProShares UltraShort Basic Materials (SMN). I'm not big on adding to winning trades (as opposed to longer term investments), but this one is tempting me. Commodities are beginning to look like a technical train wreck.
- I have also taken down a significant slug of in-the-money long-dated puts on the iShares Lehman 20+ Treasury. (TLT). This is as much motivated by the possibility of the unwind of the flight to quality, as it is by the notion that the Fed is fully engaged to create as much inflation as it can and will talk out of both sides of its mouth when it comes to worries about inflation. In a vacuum this is a risky position, should deflation assert itself. But it works as a good counterbalance to my bearish equity put positions.
- I've used this morning spike in Capital One Financial (COF) to sell some calls, though I am mindful that Boom-Boom's next shopping spree may well be in delinquent credit card receivables (two months ago I'd have said that "tic"; today I'm afraid it needs to be weighed as a possibility).
- From the rumor mill there is chatter that Merrill Lynch (MER) will report a $10-12 billion write-down. Has the Bear Stearns (BSC) story pretty much inoculated the market against such pithy issues?
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