Buzz Bits: Dow Up, Nasdaq Down
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Bell Buzz - Todd Harrison - 3:40 PM
- The sub-prime mess is sorta like a cockroach. Where there's one, there's likely many.
- Nothing like a good tug-o-war to keep us at our turret until the close, eh? Alotta folks have their eyes peeled for the post-3:30 party. I don't know when 'it, meaning a sell-off, becomes 'too' obvious but keep your right hand up.
- Silver and Black, Baby!
- Tells into the bell? I was gonna say Goldman but at this point, the final fray will be futures led. So, in that regard, let's just keep watching S&P 1400 as our technical toggle of choice.
- IF they can hold, Hoofy will have hope heading into Monday. Hope may not be a viable investment vehicle but it surely springs eternal.
- March Madness, Baby! Ya gotta love it! Make sure you play the Minyan brackets!
- And with this (and a whole lotta that), I'm flippin' lids to focus on my pad before hanging up the cleats for the weekend. I hope you had a fantastic five session stretch and that your weekend puts it to shame. Dr. J and Macke? I'll see you for dinner this evening. I'll be the guy with a face for radio.
- May peace be with you.
Position in s&p
It's not just the homie...homie - Fil Zucchi - 2:52 PM
The ticker that has me transfixed today is the iShares DJ Real Estate (IYR), an ETF of Real Estate Investment Trusts. We have beaten it around the 'Ville quite a bit for the last several years, as it defied gravity on the back of an M&A mania that left the fundies behind many "cap rate" points ago. I took a dark side shot at it with long dated puts shortly after Blackstone won first prize at the Equity Office Property orgy . . .er. . . auction. I will confess that it was more a "that's the bell at the top" analysis than a better thought out financial inquiry.
There are two reasons why I am agonizing over it today: first, the chart shows a textbook "bearish wedge" complete with volume characteristics to go with the price. But more importantly, and perhaps more so than for any other group, cheap money is THE key to this group, and guess what . . .sub-prime spreads are not the only ones that have felt pain of late.
These are the charts of the A and BBB Commercial Mortgage Backed Securities (CMBS) spreads courtesy of Markit.com. While the absolute spreads are not yet a meaningful issue, it is clear that - if not outright risk - at least the concept of risk may have been reintroduced in the Monopoly game equation.
I don't think anyone would suggest there are default issues emerging in CMBS land (yet), but there are tons of deals out there predicated on very high rental rates and very cheap money. If either were to go AWOL in any meaningful way, you can forget a whole lot of non-residential construction jobs, and the unwinding of multiples within REIT's would likely be swift and painful.
Thus my pressing dilemma of whether to add or not to add to my position.
Position in IYR
A potential risk aversion swap in the making - Bennet Sedacca - 12:37 PM
Like a good friend of mine says, 'A triple A rated bond can't get upgraded to AAAA'. What this means of course is that once FNMA paper trades with AOAS (agency option adjusted spread)'s of like 2 basis points, it's pretty difficult to get any tighter. Bullet (non callable) agencies trade around 25 basis points over treasuries, not much margin for error there either.
I just saw a BP $ billion deal in the market at 33 basis points of Treasuries. Folks buying this paper aren't getting compensated for risk, in my opinion.
So what is the point? Well, GNMA has the 'full faith and credit' of the U.S. Government behind it, like Treasuries.
And with Mr. Bernanke's comments about the GSE's (Fannie and Freddie) the other day being what they were.In my book he basically said they are NOT too big too fail and doesn't know why the market trades them like they are not just ordinary financial institutions--I would assume that spreads only have one direction to go. Up. Possibly up a lot. Which is a recipe for poor performance.
So what is the risk averse swap? Out of FNMA and FHLMC paper (non full faith and credit) and into GNMA paper. If a credit event were to occur, I would imagine GNMA would be the least hurt. And I am not giving up very much yield at all to dd so. Defined risk defined.
The worst case is you own high quality bonds. Not the worst of downside...
position in FNMA, FHLMC, GNMA bonds
Short-Term Bearish - Jess Thompson - 10:18 AM
Our firm was an aggressive seller of stock index futures this morning after the rally stimulated by the Jobs Report and the instability created by gaps higher (See post yesterday).
We think the USDJPY is more critical to market perception than jobs right now and USDJPY is now in an area of overhead resistance which should kick in another leg down in stock indices.
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