*MICROSOFT PROPOSES TO BUY YAH…
February 1st, 2008*MICROSOFT PROPOSES TO BUY YAHOO FOR $31-SHARE
* Evening Whiskey
January 31st, 2008Ok, so what was that saying again? Oh yes, NEVER FIGHT THE FED.
Well we can’t really say that the market is following that old piece of advice (this time will be different!) as equities have basically gone nowhere despite a massive 125bp rate cut by the FED within two weeks. Everybody betting against assets though under these circumstances clearly has history against him and is therefore likely to regret any asset sales somewhere in future.
So what looks good now? Well in our humble opinion we wouldn’t mind putting on the following trades:
- Short U.S. Treasuries. Let’s get this straight. The biggest debtor to the world is currently paying 3.5% interest on its 10 year borrowings, while headline inflation in the country is running at 5%+. So effectively any holder of U.S. treasuries is currently paying the U.S. government 1.5% yearly to hold their IOU’s. No way.
- Long commodities, especially precious metals. Helicopter Ben has kept his promise, though we suggest a new nick name: Boeing Ben. These money drops are really gigantic. Don’t be surprised if M3 growth (should we find out what it actually is, since the Fed decided to discontinue its publication) is now running at 15%+ year on year. That means inflation from which commodities should benefit. Precious metals are obviously the age-old hedge against this money printing, but perhaps a bit overbought in the short run. So out-of-nowhere attacks against gold can happen anytime, but are moments to pile in, not out of it.
- Long Equities, specifically Banks & Hong Kong. The problems in the banking sector are huge, the potential write-downs enormous and the fundamentals lousy. So how much worse can it get? Just stay away from Citi, Merrill and UBS as long as the bond reinsurance problem hasn’t been solved, but the rest looks like pretty good value to us right now. And oh yes, bottoms are never set amidst positive news flow, like tops are never put in when the news in bad. On a different note Hong Kong has taken a breather along with all other equities markets, but due to the link between the HKD and USD, imports the Fed policy immediately. At the same time the economic environment in Hong Kong is nowhere near that of the U.S (clearly benefiting from the Chinese growth story). So Hong Kong faces huge monetary stimulus in an economy that is booming anyway. The only way out is asset inflation.
- Short Volatility. Can you believe the day-to-day moves in financial markets? Just stepping away for a pee can mean one percent of difference in whatever instrument it is that you’re following. We will get back to boredom eventually.
On a final note: every trade has two sides an differences of opinion make markets. So yes we might actually be only at the beginning of a multi-year bear market, the problems might get bigger in the financial sector, commodities do have a chance to drop significantly when global growth slows down significantly and volatility can just as well mushroom. We just don’t think those are the most likely outcomes currently. If you do, just replace long with short in all trades mentioned above. Happy Hunting!
—— Evening Whiskey is a an irregular update on the state of financial markets and the opportunities it provides by dealingfloor.com. It is not investment advice and not a substitute for your own judgment. When taking on any investment, make sure to have a first aid kit at your disposal that is jammed with tranquilizers and sleeping pills, you’ll need it. History is not a guide to the future, nor is anything else. Any sane person knows that there’s no sure thing except death and taxes. Fortunes are made and lost each day in this arena. If you can’t stand that heat, please stay out of the kitchen.
*MASTERCARD 4Q EPS EX-ITEMS 89…
January 31st, 2008*MASTERCARD 4Q EPS EX-ITEMS 89C; ANALYST EST. 73C
*BRISTOL-MYERS 4Q EPS EX-ITEMS…
January 31st, 2008*BRISTOL-MYERS 4Q EPS EX-ITEMS 33C; ANALYST EST. 34C
*ASTRAZENECA 4Q NET $1.27 BLN;…
January 31st, 2008*ASTRAZENECA 4Q NET $1.27 BLN; ANALYST ESTIMATE $1.28 BLN
* MBIA, Ambac May Each Have $11.6 Billion in Losses, Ackman Says
January 30th, 2008By Christine Richard and Mark Pittman
Jan. 30 (Bloomberg) — MBIA Inc. and Ambac Financial Group
Inc., the two largest bond insurers, may each lose $11.6 billion
on guarantees of residential mortgage securities and some
collateralized debt obligations, according to hedge fund manager
William Ackman.
Ackman calculated the losses using a model supplied by an
unnamed investment bank and sent the findings in a letter to the
Securities and Exchange Commission and New York Insurance
Superintendent Eric Dinallo. Ackman is a managing partner of
Pershing Square Capital Management LP, which is trying to profit
from declines in the stocks and bonds of MBIA and Ambac.
Ackman, 41, stepped up his attack by posting on the Internet
a list of asset-backed CDOs and other securities guaranteed by
Armonk, New York-based MBIA and New York-based Ambac that allows
others to craft their own loss predictions. Ackman didn’t say how
he got details on the securities, many of which haven’t been
disclosed by the companies.
“Up until this point in time, the market and the regulators
have had to rely on the bond insurers and the rating agencies to
calculate their own losses in what we deem a self-graded exam,”
Ackman said in a statement preceding release of the letter. “Now
the market will have the opportunity to do its own analysis.”
MBIA fell $2.56, or 16 percent, to $13.42 at 3:21 p.m. in
New York Stock Exchange composite trading. Ambac dropped $1.77,
or 14 percent, to $11.16. Both companies have lost more than
80 percent of their market value in the past year.