Buzz Bits: Dow, Nasdaq Creep Higher
Your daily Buzz highlights...
Earnings Report - MV News
Okay, lower, first. Then... - Rod David - 1:50 PM
S&P's did surge from today's first tick, all the way back to Friday's cash session close. But that has been the extent of today's bullishness so far. And this consolidation through the noon hour's end needs to make another run at Friday's highs without delay, or prices could "fall of their own weight." So, new highs remain likely, but new highs also remain likely to fail. Meanwhile, buyers' disinterest is exceeded only by that of sellers. Friday's price surge seems a distant memory.
Friday's volume has already been criticized here for being too low, as was the afternoon high. Now add follow-through (the lack thereof) to the list. For awhile Monday morning, more NYSE up volume than down volume was producing fewer advancing issues than decliners. Pessimism can be bullish, at the right times and in the right doses. But this is complacency. New highs require volatility either to refuel on pullbacks, or to attract buyers into strength. Sellers have already proved unwilling to act on weakness, making new highs all the more likely. But buyers aren't proving to be any more willing to act on the recovery.
Perspective Directive - Todd Harrison - 1:22 PM
I've spent some time this morning walking through a bevy of reports that are championing the risk/reward of the current market. Some are likening the recent S&P acne to the Nikkei breakout in August 2005, which led to a monster gain. Others, using their technical pencil, are projecting an assault on all-time highs at S&P 1553ish. Still others are saying that this is 1995 all over again, where failure to buy a ticket left you off--or under--the equity train.
Can this happen? My opinion, as many Minyans know, is completely dependent on the US Dollar. I noodled this dynamic last week, wondering aloud if a sharply lower dollar would fuel higher prices still, and that remains the game from where I stand. The tie-breakers are rates, foreign "appetite," domestic "unrest" and the elasticity of debt but, at the root of it all, is the basis of valuation.
I will again offer that it's possible to see a weak dollar and weak asset prices but I strongly doubt we'll have a strong dollar and higher stock prices. And while I'm spending some time eyeballing "dollar alternatives"--the Loonie, eh?--I'm continuing to practice patience as I wait for better and more attractive entry points in the metal and energy complex.
Not the most exciting post in the history of the Buzz & Banter, I know, but it's from the heart and now it's on your screen. As always, I hope this finds you well.
Unholy alliance... - David Miller - 11:59 AM
I've written many times that I thought Mr. Spitzer went after the wrong research analyst conflict. The conflict between the trading desk and the analysts are far more subversive than the obvious and public conflict between bankers and research. Today we have this story from the Financial Times about Lehman (LEH) essentially making their analysts salespeople.
One of the core legal and ethical rules of research is you don't play favorites, right? If you get a piece of juicy information, you tell all your clients not just your favorites. The NYSE/NASD/SEC, in fact, prohibit selective disclosure of the research product -- though one only has to be around this industry for about 5 minutes to know that rule is broadly ignored. Now Lehman is dropping all pretense, encouraging its analysts to call favored clients with trading ideas. I long ago abandoned the quaint idea that market regulators actually pay any proactive attention to their jobs, but one would presume this might at least cause some regulator to pause and think... right?
Don't look now, but we are about to have a 5 handle ACROSS THE ENTIRE TREASURY CURVE...... - Bennet Sedacca - 11:12 AM
It has been a long trip from 1% but when-issued six month bills (bond equivalent yield-see bond basics) just traded at 5.01%. When issued 3's are 4.97% and 2's are 4.96%. 5,'s, 10's, and 30's all solidly in 5's, particularly off the run bonds.
And yet, hedgers CONTINUE to press their bets to a record 265,301 long bond contracts. Open interest surged to 851,211 contracts - similar to the early 2005 high - see chart here, but no where near the 1,100,000 open interest that surrounded the flight to quality trade that surrounded the LTCM disaster in 1998.
So far, the smart money ain't looking so smart, but only time will tell. They usually are, but who knows in this wacky world of derivatives if they are hedged somehow? Just a guess as this cyclical bear is feeling more secular all the time.
Position in various Treasury securities
Pin Spin - Adam Warner - 10:53 AM
Do large hedgies/traders manipulate stocks to close at/near strike on expiration? A couple of "professors" (the college kind) say yes, but color this professor dubious.
I do not doubt that they may *attempt* to pin. But it would require both massive size, and the assumption of the ensuing market risk. In other words, if someone is short a straddle near strike, and willing to "double down" and buy below and sell above the strike on expiration day, he is hugely exposed to a move away from the strike. And the fact that he is at risk of the market and could easily justify his actions ("hey, I was already willing to buy stock below strike by virtue of my put sales, why can't I buy more?") makes the term "manipulation" a tad misleading.
Golden West take-out - Brian Gilmartin - 9:59 AM
It is no surprise that Washington Mutual (WM) is $1.50 higher in early trade on the Golden West (GDW) take-out, since WM is also a thrift and has been rumored to be an acquisition candidate for years, since the late 1990's in fact.
I own a little WM in some of my more conservative portfolios given its 4.5% dividend yield and its 1.5(x) book and 10(x) earnings valuation.
Bill Nygren of Chicago's own Oakmark Funds has had a substantial position in WM since 1997, consistently stating that any buyout would be in the $70 range, or essentially a doubling of current values. Although Bill and Oakmark was a tad early, nonetheless he is a fabulous value investor and will likely be right eventually.
WM ran into troubles in the early 2000's due to a faster than expected branch build out (higher fixed costs) in the face of a large refi boom, and obviously has been hurt by the flatter yield curve, and the drying up of the ARM mortgage market, as they lowered q2 '06 slightly in their last earnings report, but the stock has still managed to move higher since WM last reported earnings.
I'd like to own more WM for client portfolios, but will not chase the stock.
Position in WM
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