Buzz Bits: Dow, Nasdaq Give Back
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Flashback - Bill Meehan - 3:50 PM
This day in market history...
- Closing levels 2 years ago
- DJIA: 10,342.60
- Naz: 1,989.54
- S&P 500: 1122.70
- Crude: 37.23
- Gold: 385.50
This day in Minyanville history...
- In '04, Prof. Succo took a stroll down memory lane to explain a trade in 1989.
In other news...
- In 1967, Muhammad Ali refused induction into the U.S. Army.
We'll Take Those back Now - John Succo - 3:45 PM
We discussed several months ago how JP Morgan (JPM) bought an absolutely huge amount of options directly from Microsoft (MSFT). This transaction was the result of MSFT eliminating its option plan to employees in lieu of restricted stock. The company then gave employees the right to transfer to JPM their options for cash.
JPM bought these options at a much higher implied volatility (relative price) than where they sold them out to the market place synthetically, thus taking a very large loss. They sold a huge amount of options to the market place at around a 14% implied volatility.
Just a few minutes ago JPM bought over 30,000 January 2008 options back from the market at a 24% implied volatility. This was one of several trades today.
The only thing we can think of is that JPM in an attempt to recoup their losses oversold the options at a 14% implied. With today's move in the stock, option prices have sky-rocketed.
Position in MSFT, JPM
Bank Shot - Kevin Depew - 3:21 PM
Looking at the Banks vs. the Brokers, Todd and I were wondering why the Brokers (XBD) are trailing the Banks (BKX) so much today. Lots of upgrades today of the money center banks. So maybe BKX is playing catch up to the XBD? Funny, I took a look at it and turns out the BKX has now surpassed the BKX on a relative basis in two days.
I read a few minutes ago where a respected Bank analyst responsible for some of the upgrades reasoned that "growth in global capitalism is a positive trend that should help the banks." There are a lot of words in that sentence that I would imagine we are defining in very, very different terms.
Surprise surprise surprise (said like Gomer Pyle) - Bennet Sedacca - 2:59 PM
Boom Boom's testimony yesterday was a bit of a shocker. So far he hasn't gotten much out of it in terms of market action except a slightening steeper curve, a dollar going in the latrine, and the bank index acting like BKX.com.
Last week, I made mention here that the 2's-10's spread had broken through the 200 day AND 50 day moving averages and that the 50 day had turned up, confirming the uptrend.
In the last couple of days, we have had a little (and I mean to emphasize a little more steepening, but I am not sure what everyone is so excited about). My math shows a 7.3 basis point steepening with the dollar getting creamed.
Call me dumb, but the dollar collapse is more important, and inflationary, then the measly 7 basis point steepener. I have to admit NOT beinga bank analyst but I can't imagine people in bank boardrooms across the country jumping for joy over 7 beeps. Maybe they are? Nah.
But see the chart here. We are about to wander right into the teeth of resistance of the steepener just as the Dollar Index tests mega-important support at 86. My conclusion? After this little cycle high move for bonds into next week, I wouldn't wanna be long as all of this to me is hyper inflationary - not to mention commodities are going through the roof.
Position in various treasury securities
Wippeee dee doo dah, wippeee dee yeah - Fil Zucchi - 11:53 AM
- Please keep an eye on the speed of the move the dollar, aside from the size, as volatility seems to be spilling in that asset class.
- Oil is now up almost $2 from the morning lows.
- Did you see what they have done to Navteq (NVT) in a matter of two days? That came after Sirf Tech. (SIRF) face plant. Garmin (GRMN) reports next week.
- Aunt Fannie (FNM) back at a critical areas - for Hoofy and Boo.
Position in FNM
Is that an Elephant I see? - Todd Harrison - 10:32 AM
The Minx slinks through the muck as traders try to press their luck. With a respectful nod to the energy and metal space (en fuego anew), the standout action is again in the financials spectrum. They're stronger than a mule's breath, as my friend David Slaine would say, and that mule has acne to boot.
I was reading my buddy (and MIM panelist) John Roque this morning, who opined that a "five year "big base" counts to a projected technical target of BKX 140." He might be right--he's a pretty sharp cookie--so you can color me respectful.
Be that as it may, I've been trading around my positions (from the short side) and I've thus far been wrong. I "see" the breakouts and understand that buyers beget buyers but my sense is that there's a lot more "risk" to these names than charts might indicate.
I will offer that, in the vein of discipline over conviction, I'm keeping a close eye on Citi $50. A trade through those levels may trigger another wave of chartist demand.
Position in C, financials
Economics of a pandemic - David Miller - 10:00 AM
There is little doubt the economic impact of a pandemic contagion would be severe (Todd's Buzz item below). The economic impact of a large asteroid hitting the earth would also be severe. The economic impact of the sun going out would be exceptionally severe. The trick for an investor is to assign some factor of how likely the event is. According to the Nature article authored by the man who has treated more H5N1 infections than anyone on the planet, the likelihood of a human H5N1 pandemic is low.
And in the above-referenced article, Osterholm's comment that we'd be treating a pandemic with 1918 medicine and equipment (if reported correctly and in context to his actual comment) is egregiously irresponsible at best. Same goes with the panel's belief that a flu pandemic is "likely" within the next six years.
Well, it's not as bad as the mutual fund cash thing you showed yesterday! - Jason Goepfert - 9:46 AM
Just a quick note on the media-induced delirium over the comment yesterday that the Federal Reserve may, at some time, temporarily halt their rate hikes, and the possible impact on equities.
I would point Minyans to the definitive work by Ned Davis Research first of all, as it goes back further than I am able. However, this might serve as a good appetizer:
Future six-month performance after last Fed hike (1969 - present):
Yield curve shape after Fed says "no mas?" - Brian Gilmartin - 9:34 AM
While a lot of time and attention in the financial press is devoted to when the Fed says that the rates hikes are over, I'm trying to figure out what the yield curve will look like once the Fed or FOMC stops hiking the fed funds rate.
The obvious trade for a cessation of Fed hikes is to extend maturity (and thus duration), and "buy convexity," but I actually think that the short end will outperform in a benign monetary policy environment, and that the attractive spot on the Treasury curve could be the 2-5 year area.
Since the 10-year Treasury and beyond has really held in despite the Fed's 15 rate hikes since the summer of 2004, which has been an illogical trade (to say the least), I am wondering if the 10-year Treasury and beyond will thus steepen after the Fed indicates it is done, thus continuing the "counterintuitive" trade.
We are prepping bond portfolios and our bond clients for a re-balancing of the fixed-income accounts, and we are actually considering shortening duration. High grade corporate and intermediate bonds seem like a good place to be, as we are avoiding high yield (for now) given the auto company troubles.
This is just my opinion, so take it as just that, and I'd love to hear others thoughts on the fixed-income as the Fed landscape changes.
Position in treasuries, muni's, and intermediate bond funds
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