Vad Yazvinski
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"You don't get harmony when everybody sings the same note"
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Today's rally made the big picture quite a bit murkier for me...Markets shined with momentum darlings rebounding incredibly strong. But is it real? What has changed since yesterday? Is it really a dead cat bounce or are we seeing the usual year-end rally? I am not completely sure yet, and think that while today's snap back could have hardly been any more convincing on the surface, it was not triggered by solid data, but rather was simply an opportunity for bottom fishers to pick some deeply discounted (compared to last month) shares. Let's be realistic and reasonable- while Goldman's comments that it does not expect any write offs seem to have triggered a "cheerful rally" in the financials, I still don't understand, whether people simply can't or don't want to read the whole story. The only reason GS is not writing CDOs off is because it maintains a net SHORT position in US mortgage market? So the maestros of the herd say that they are SHORT and the stocks that are most heavily exposed to this short position, rally in double digits? Heh? I had to actually drink several beers followed by two cups of coffee when trying to think it through... Several "Foster's" six pack and a mad wife later, I still came up with no convincing explanation other than simply assuming this was a typical "greed" rally... Another puzzle today- commodities declined but commodity stocks and ETFs rallied- again not sure why? Smells like people were first getting burned in their short position this morning and then kept jumping into yesterday's losers- momentum darlings. Same thing with retailers- WMT and TJX did offer good numbers, but a large chunk of it has been the lagging indicator of performance during the last quarter. My observations and available data so far seem to suggest that real slowdown in the economy has only started to show in mid October...So WMT's report doesn't really mean much as a leading indicator... Anyway, back to the original forgotten intent of this post- Ken's FNM question. I'll try to keep it short - "Kai's" style...- FNM- fundamentals- neutral; momentum- poor; risk- medium high; insider selling-neutral- overall recommendation is weak hold. There was an interesting article in WSJ today about FNM and FRE that quoted Fannie calling itself "Shelter in a storm". The overall tone of it was mildly positive and I tend to agree with its thesis in general-FNM isn't a bad stock to own at a right price. The two fundamental questions are- is it cheap and if it is what is the difference between FNM and private mortgage insures? The answer for the latter is simple- default risk so comparing it to TGICs and PMIs of the world is simply irrelevant. Fannie is virtually guaranteed by the US government and thus would be bailed out in a case of severe trouble. I don't have a clear answer for a first question today- while it is certainly cheaper than it was a few weeks ago, the increased provision for credit losses moved earnings into a negative territory on a tune of $1.5b... Dividend yield is hefty 4%, but can it be sustained another potential 12 months of trouble? Equity is strong $39B but I would expect up to 10% could be gone within 2 quarters... Overall I would not expect FNM to outperform the other big name Financials in the near to mid term, so your money might be safer with WFC, WB or BAC... Anyway, hopefully most of you guys/gals had a good day today, so trade safe and cheers, P.S. Looking at pre-market movement I might be selling FXP, SMN, DUG this morning as it is not in my interest to lose a bunch of money by betting against the market... | ||
Comments (5)
In my point of view, the comments from GS is interpreted as an early sign of stabilizing credit market by Wall Street Investors. Because from GS's debt structure it is impossible to hold only short position of CDOs. Most likely it is one of the hedged positions.
Posted by StockTrader12 | November 14, 2007 12:01 AM
Vad,
... I think it could have something to do with
November Options Expiration. There may be a lot off big-time players who made bad bets about the Market direction - They may want to do a Push-Down into Friday. I haven't looked at Strike vs. Market vs Nov-Opt Open Interest but it may be advantageous for some to move Prices below or above strike by Friday. I call this the War between Good & Evil. "Good" may have touched off a rally to Squeeze the Shorts on Tuesday or Evil Put Sellers may need a "Boost". Last Week's Profit-taking could have raised the Cash to do it.
...There also may have been some post-election ( off-term ) activity; a lot of people may be selling now to avoid higher taxes that are rumored to be under consideration for the 2008 Tax Year. This Tax issue would be Independent of Market Sentiment - Just an RCT ( Raw Commercial Transaction ) done for Tax Purposes...
...It could be a simple "Relief Rally" after a period of being "OverSold". I've been looking for a Hint of new Leadership if this is a Rotational Pivot Point. Since most Boats got lifted - It's hard to tell and to soon as well.
That may be why you're "In the Dark" about it.
There's no Pattern, no Rhyme nor Reason. We'll have to 'Stay Tuned', keep our eyes open and our ears peeled. Don Ferk
Posted by don ferk | November 14, 2007 2:21 AM
Vad, How did you come across your pick GEOY. It doubled in the last six months. What are its prospects for anext 3 years? It is located a few miles from me and I did not even know it existed!!
Posted by gullapalli | November 14, 2007 8:18 AM
StockTrader12: My point was that they maintain a net short position- hence will benefit if CDOs that they themselves originated go down...Isn't it kinda bullet proof business model though?- you bundle a CDO in one division sell it to a client and then short in another...
don- agree with you on a relief rally with a punch line that it might be just temporary
gullapalli- I found it when screening using my simple quant-like screen, read the 10Qs, liked the business concept behind it and bought it :)The have the best quality satelites in the business and thus it is only a question of when someone bigger will want a peace of them
Posted by dishwasher | November 14, 2007 10:24 AM
Gull-Able- Palomino ( drinkin' Eye-tie Vino )
... Vad got GEOY from the Proper Pronunciation of "Geoduk" , which is Gooey Duck.
From Wikipedia : The geoduk (pronounced /'guː.iː.dʌk/ i.e. "gooey duck"),[1] Panopea abrupta or Panope generosa, is a species of large saltwater clam, a marine bivalve mollusk which is also known as the king clam or elephant trunk clam.
...It's a China play - the GEOduk is farm-raised in the Mud of Paleozoic Oooze ( Greek for Ouzo ) in the Pacific-Coast ( Left Coast ) Oergon Estuary Bays. It sells, Sells, SELLS for Big (Gooey)Bucks in China and elsewhere in the Orient ( Japan in particular).
...It's the only USA Export ( besides HollyWood Movies ) that gives U.S. (US) a ghost-of-a-CHarlie Chan -Chance of balancing the Trade Deficit-ed Balance O'Trade & Re-Storing the Big CA ( Corporate America) induced Current Account Balance.
Don Lee Ferk ( aka VikingWarrior aka THE SLO Goo-Rue [ more Gu than Ru, tho' ] )
Posted by don ferk | November 18, 2007 3:27 AM