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Buzz Bits: Week Ends on the Downside


Your daily Buzz & Banter highlights.

Editor's Note: This is a small sample of the content available on the Buzz & Banter.

South African Mess Good For Gold - Adam Michael - 2:24 pm

I would like to point out the recent performance of the South African gold miners: Harmony (HMY), Gold Fields (GFI), and AngloGold Ashanti (AU). First quarter reports are out and it appears most of the bad news from the power outages is baked into the current stock prices.

The Rand recently strengthened to support at 7.50 and now appears ready to resume its weakening trend. I have heard some terrible stories about the political/economic environment in South Africa and am headed down in a week to check things out for myself. If I'm right, expect the South African gold stocks to significantly outperform through the end of the year.

Click to enlarge

Position in HMY, GFI, AU

S&P Trend Down? - Jeffrey Cooper - 12:57 pm

The S&P was talking when the down open failed to generate a move into the green that held. It suggested a trend day down.

Because this action is occurring on a Friday, which is a rule of thumb bull day in uptrends, it adds to the notion that a defensive/short posture is warranted.

It underscores the notion of - as Toddo calls it - the Sway In May Theme. Or as Boo calls it, 'don't just sell in May, sell short and go away'. But of course Boo has a bias doesn't he? Don't we all? Objectivity is a pearl before swines.

Additionally, Apple (AAPL) seems like it has eyes for 180, today looking at an hourly chart for the last 10 days.

Click to enlarge

Remember the square out at 184 and the first week of May which resonate off the climatic low the initial low on Feb 7th. Here we are 90 degrees in time from that date.

Position in AAPL

Priceline Deals! - Ryan Krueger - 10:00 am

In 2002 when Priceline (PCLN) was wearing a hat size for its share price, I never imagined less than six years later it would be described "the most defensive NET stock" by an analyst this morning. But I did like the business and it's operating at a very high level. The stock looks to open 23-fold higher this morning, from those lows.

As I mentioned late last year when we added (CTRP) as its eastern cousin, my sources in NYC told me they'd overheard a lot of shoppers asking for the "Pepe look" with European accents and they didn't get there by train.

A friend writes software for the ticket-booking industry, and volumes of travelers were shocking him, into the teeth of slowdown fears.

Position in CTRP, PCLN

There's Money Out There - Mr. Practical - 9:13 am

Some have been saying there's money out there to invest. If there wasn't, where is all the money that buys these deals from companies issuing stock coming from?

The real answer is it's being manufactured by hedge funds.

The hedge fund industry is going through a correction for sure. Those that don't run the risk properly have been paying the price. But there are really good ones, those that do run risk properly and are growing in capital and access to leverage.

Let's take a recent deal like Fannie Mae (FNM). Hedge funds know the company needs to raise capital and is thus willing to pay an egregious cost to get it done. When the broker-dealer comes to call for FNM it's with a derivative structure called a mandatory. It's a little more complicated than this, but essentially the mandatory is stock (convertible into) paying a very high dividend. The hedge fund is able to buy this derivative at a price yielding much more than the common stock, which it then shorts in the open market as an almost perfect hedge.They get a great return for very little risk. This is all at the expense of the current diluted common stock shareholders. Hedge funds borrow the money to do this. This is the one area where credit creation is being accomplished: the hedge fund is willing to borrow because of the great return and the broker-dealer is willing (and able) to lend because of the great collateral (no risk).

One gets the feeling that the powers are getting stock prices up so companies can raise capital by selling stock to hedge funds who sell it to the general public first.

Position in FNM
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