One of worst bonds I ever bought from a bond desk were some crappy Harrah’s 10 year notes. This was at the peak of the buyout boom and you could not find anything of quality that paid much more than a Treasury. At the time, the press was having a bru ha ha over the stupidity of the Chinese government that were buying 10 year Treasuries at 4.5%. What were they thinking? You could get 8% on Harrah’s notes and of course rates would be going up soon. Plus, TPG and Apollo wouldn’t be buying it for $30 billion if it wasn’t a good deal. How wrong we were. The Chinese ate our lunch as Treasures rocketed in price two years later, they made billions, and I was sitting on notes dropping in value each day. After cutting my losses and moving on, I wanted to look back and see what the last hand. In this weeks Business Week Christopher Palmeri writes about the aftermath. In the end, it makes me sick to see firms simply renegotiate the loans under the threat of bankruptcy. I thought 60-70 cents on the dollar was a horror show, but this month that is exactly what Harrah’s tuned the chips into – 63 cents on the dollar, and less interest to boot! Read more at BusinessWeek.com
Harrah’s Entertainment is having a little luck. The wounded casino giant has persuaded bondholders to forgive some of its debt, twice now. In the latest deal, on Apr. 9, investors agreed to exchange $5.9 billion in loans for roughly $3.7 billion in cash and new debt, taking a 37% cut on their principal.
Read the whole article on how the house brought down the investors here.
BY MISREADING the risk in mortgage-backed securities and other “structured” products, the rating agencies Standard & Poor’s, Moody’s and Fitch played starring roles in the failure of finance. Their punishment? Oddly, the further entrenchment of their dominance, thanks to the Federal Reserve.
So, screw up any faith in your ability to rate securities, have the government start a program to buy up the toxic crap, and get the Fed to pay you 400 million to rate the same crap. I am in the wrong business! This is sick. Other firms should be allowed to bid for this work. I am sure there are hundreds of laid off bankers out there can actually earn a decent living providing a decent service to the Fed and the taxpayers: giving an accurate rating to toxic waste.
Today on CNBC I was talking about the Euro/Yen relationship. First, I have to give all the credit to Helene Meisler for pointing it out. You see, I worry anytime I have an original thought! It could be a trap my ego set up. So, the currency pair started to make this perfect head and shoulder pattern over the last few weeks, but I needed to be sure it was going to break down. The bottom line is that until you have a chart that is valid, you are on your own. On Monday, the breakout happened and today I took on a position in FXY.
I see the strong Yen as an early sign of weakness in the stock markets. But, I was reminded that it usually takes a few weeks to work into the stock markets. So, instead of using the indicator to short the indexes in general, I just went long Yen. Now, I have also started to short the retail services sector, but that is more of an observation that this group is way overextended. Will the Yen be the tell this time? We will know in about 2-4 weeks.
I still think we will retest the March lows, but it will take some serious damage to get the correction going and we probably will not see a lower low. The bank stress tests are surprising. I am not encouraged when the rooster says there are a few hens missing and needs more capital. Also, we are close to May, which is the start of the ‘dry’ season until November if you are into the Almanac stuff. The FOMC meeting is tomorrow and all I know is that it will bring volatility. A nice change from the last do nothing days.
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We have been talking to TPA’s, CPA’s, and business owners about this for months. This sets the record straight about why an unbundled, transparent plan, with personal advice, and no hidden sales loads is worth it. Maybe now that it is on TV people will give my firm the benefit of the doubt. The bottom line is I think people simply didn’t believe us when we told them how bad they or their clients were being ripped off. It is unbelievable and CBS news has given us some credibility. It is time to take action and review the cost structure of your 401k.
No, this is not a reference to HBO’s True Blood, a favorite of mine (I can’t believe we have to wait until June for season 2). I am talking about the V formation of most chart patterns including the S+P 500 over the past six weeks. The issue is that V’s are not generally found in nature. Usually, we get a W or something that will either fill in a gap or at least try to retest the bottom of the V. Seven weeks ago I went on CNBC and said to raise some cash because we could see the DJIA get to 6000. Boy was I wrong! I no longer think that will happen, but DJIA 6300-7000 would take very little in this environment. Today we see CAT hit their first loss in 17 years and some M+A activity is heating up. This is good, not bad. Just keep in mind this just means we are starting to get to the bottom of the economy when solid firms go into the red and mergers of equals start popping up. It does not mean it is over, though.
In the end, I would still rather wait to see some consolidation and keep trading short term until we either retrace more than 3-6% or can go sideways for a while. Even if you don’t like the money the government is spending doesn’t mean it won’t work. The problem is that it will debase the currency. So, check out the potential double bottom on the gold charts, remember that people will still need office space in Manhattan, and keep some cash around for a mild to wild pullback. Just don’t be afraid to dip your toe in when it seems the world starts looking like ‘the end’. You generally only get 2-3 times to jump in and after that you are a broken record or a clock that is only right twice a day.
Good question. While I feel we are heading for a correction, my best guess a few weeks ago that it would occur by mid April is not happening. Today we are seeing a typical blow off the Monday after options expiration. I am using this opportunity to play Treasuries on the short side and pick up some gold stocks. Nothing ground breaking, and I am keeping my limits tight. Meaning, we are still just hanging out until we see some real changes in volume. The Euro started to break down, but Helene Meisler has reminded her readers that this is a leading indicator and it could take a few weeks before the weakness works its way into the stock market. So, now we are looking at the beginning of May before the fun starts. What you want to avoid today is buying ‘long-term’ positions just because the market is down a few points. It could easily reverse and start to rally over the next few days. So, unless you like the feel of a meat grinder, keep the swings ultra short or go out and enjoy the sunlight.
Today I had a few of my comments quoted in an article for thestreet.com regarding SPAC’s. Here is the link “Hedge Funds Find Arb Opportunity in SPACs”
It is not important that you understand what a SPAC is or what hedge funds are tinkering with today, but you do need to understand the concept of decay. Anytime there is a huge disruption in the market an arbitrage opportunity may present itself. Meaning, the promise of easy money with little downside. The problem is that if the money is really that easy, it will disappear as more people catch on.
So, what is starting to decay in the stock market today? Right now, the market is trying to finish off a six-week rally. I know, we are only five weeks into it. What we don’t know is when the rally with stop (they always do) and how bad the correction will be (mild or strong). So, for right now you can either sit back or change your strategy. Adaptation is the name of the game. We went from an uptrend and now it appears we are transitioning to a potential downtrend. Instead of being late or early, you can do nothing or trade intraday or for short one to two day periods. In fact, you can do whatever you want! However, with the market getting near strong resistance points, I am shortening up my swings and keeping my stops tight. The seeds of a bear market rally are being planted, yesterday by the comments of George Soros, and if it takes hold, you do not want to be stuck in a bullish mindset.
Buying is easy, selling is hard. Today, however, the situation is reversed. Last week I was stopped out on a gold play, and today I am very happy the stop kicked in as we see gold getting hammered. The reason this is important is that portfolio managers tend to load up on stocks when gold sells off because there is the perception of less risk. This says nothing about the overall economic situation we are in. Part of the issue investors have, opposed to speculators, is that the news does not always match the markets movements. Only a month ago a person told me they saw no reason to own stocks. I agreed, but that idea was based on the news, not the price action of the stock market, which was oversold at the time. So, while I think we are in for a tough earnings season, the economy is still in the crapper, and the government is on shaky ground, we can go higher. My best guess, gun to my head, is that we pause now, peak out by April option expiration date, and then start to slide. Keep in mind that the next two weeks is not about being right about this rally, it is real, but how the charts will form. I am unconcerned about being right about sliding in late April. In fact, my feelings are irrelevant. Making money is the only goal. This is why I am focused on short term trading until we get further along in April. Only then will we get a clearer picture of how the summer months will fare.
