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Random Thoughts: The Moment of Truth Approaches

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Credit Default Swaps are showing signs of stress.

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  • As discussed in my morning missive, March Madness might make February look like a walk in the park. At the heart of the matter is the treatment of AIG (AIG) credit default swaps, which was surprisingly glommed over in the morning news.

  • I would also draw your attention to General Electric Credit Corp (GECC) CDS and Berkshire Hathaway CDS, which are also showing signs of stress.


    Click to enlarge


  • If Ben Bernanke is indeed a contrary indicator, is it almost time to dust off the buy tickets?

  • I'm on a Nirvana kick of late. Hey, it could be worse.

  • Note the homies, which are again showing signs of relative strength. They were the first sector to lead the market lower and the fact that they're 15% higher than the November lows is worthy of a mention.

  • Other dry eyes in the Red Sea ? Dell (DELL), Cisco (CSCO), Intel (INTC), Apple (AAPL), McDonald's (MCD), Qualcomm (QCOM), VMWare (VMW) and Dow Chemical (DOW).

  • On the bright side, we've got 48 hours of Jack Bauer tonight and it just doesn't get any better than that. Well, if Keira Knightley made a cameo-that would be better-although I doubt if FBI Agent Renee Walker would react well to that.

  • S&P 600 used to sound really, really low. Now, we're a handful of points away from a six-handle.

  • I entered today's session with a flat pad and dry powder (small, placeholder positions in Dryships (DRYS) and Yahoo (YHOO) notwithstanding). I hadn't pulled any triggers until nibbling on some SSO when the S&P was down 28 to have some exposure. A tight, trailing stop on this puppy will keep that risk defined.

  • I almost bought some Research in Motion (RIMM) and BHP Billiton (BHP) as well but opted to watch the tone and tenor a tad more.

  • If we get to S&P 600 on a bungee-which would likely be caused by a catalyst (General Electric (GE)? General Motors (GM)? Jack Bauer?)-I'll not only deploy 25% of my long-term capital, I'll likely be "all in" for a short-term trade as well. Yes, that's 14% away but 14% isn't what 14% used to be.

  • I just pulled up a chart of the VXO (angst index) vs. the last time the S&P was trading around these levels. Please note that while the S&P is now below the November lows, the VXO is more than 50% lower than it was the last time we were here.


    Click to enlarge


    Complacency? Yawn... it feels that way.

  • I'll again say this because it's incredibly important that it's said-FINANCIAL STAYING POWER-when the dust settles, Minyans, there will be profound opportunities. Our goal, as a community, is to be in a position to prosper when they arrive.

  • Keep your head up Minyans and remember discipline over conviction, risk management over reward chasing and the ability not to trade is often as important as trading ability.


And Finally, Some Wisdom From Minyan Peter:

"With everything going on out there, I wanted to highlight that David Moffett, the head of Freddie Mac (FRE) resigned today. Mr. Moffett had in his career been CFO and Vice Chair of USBank. While Washington will spin his departure as Washington will, I would offer that he is not the kind of person we should see leaving Washington at a time like this.

But I can't say that I blame him for leaving. Being twisted on a salt-water taffey making machine would have to be more pleasant that trying to run a failing private-public enterprise reporting to a Board of Directors, the House and Senate Finance Committees, OFHEO, the Treasury and the White House. Let alone having every one of your expense statement subject to Congressional and CNBC review. No man can be the slave of two masters, let alone 600."
--Minyan Peter, Buzz & Banter, March 2, 2009 (position in spy).

R.P.

Positions in SSO, YHOO, DRYS

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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