TCM Notes : 4/20/09

• Slide of hand nationalization is creeping back into the investment mosaic after an unnamed official said they could avoid asking congress for more money by converting the loans into common equity. That's what I call dilution on the horizon, and they may very well tell the "big 19" that they can't give the money back right now. We'll have to see how Mr. Market feels about this.
• Details on stress test this Friday. Results on May 4th.
• Under the radar last Thursday Direxion launched the 3x leveraged Treasury etfs based on the 10 and 30 year bonds. 10yr bull = TYD, 10yr bear = TYO. 30yr bull = TMF, 30yr bear = TMV. The volumes are non existent at this point, but I think that's do to nobody knowing these things launched. Look for the volume to pick up dramatically from this point forward. So far it seems the 30yr bear, TMV, is getting the attention. I suspect this will continue as even the Fed has said it's harder to control the long end of the curve. What's a good price on these? I don't know. I need to see a chart pattern/ base/ or moving average support develop before I can get a feel for risk/reward. This is essential with these types of etfs no matter how worthy the theme may seem.
• Adding to the Treasury theme for me (and perhaps conflicting me somewhat) are my notes from this evening. Supply of Treasuries only matter in a bear market, and the safety of guaranteed money is still functioning as a haven for many; despite the rally we are seeing. Perhaps even more so is the fact that real yields have started to increase due to risk assets performing better these days. Tie into this the 60minutes piece on 401k plans this evening and there may be a new dynamic. We may have lost a generation of risk takers with this most recent meltdown, much like the one that was lost after the depression. Boomers may then seek more lower yield "safe" investments with guarantees attached to them in order to feel better about their financial security. This would provide a continued bid in the market to address this enormous supply coming out of Treasury. And with the Fed monetizing Treasury's debts too it adds yet another factor to the equation. Waiting for velocity of money to kick into gear, and a fed rate hike would be the best scenario for going short treasuries. In my opinion.
• MGM - Apparently Ichan owns 500m of the 7b of non bank debt. He's pushing for a restructuring which to me sounds like a losing proposition for current equity holders.
• Keep an eye on tech. It actually led and confirmed this recent move up. A reversal in tech could cause distribution to emerge in all the indexes. QQQQ
• 20 years of CNBC with a loose Fed at the steering wheel. A study in bubbles as it pertains to behavioral economics in a 24/7 news flow seems in order.
• MELI could be a growth by acquisition play for EBAY.
• 28% move in 6 weeks. If we are going to mimic 1938 in the SP500 the total move then was 62%. All my moving averages continue to move higher. With the 9 and 20 crossing up through the 86dma on the SPY. The target is the 200dma which is up there around 107. Selling too soon and arrogantly prognosticating a top has been my folly the past few weeks. Don't let it be yours. Trade with the intermediate trend, and let the averages take you out of the trade if they are violated to the downside. Easier said than done it seems.
• Saturn Confidence Plan - yet another study in behavioral economics. They will pay your note for 9 months if you lose your job after you buy a car. Somehow they will be able to know your job security? Based on what data I would love to see. As would the rest of the market. I think it has something to do with a certain government backstopped GMAC, and a non existent fed fund rate. But what do I know?
• Dogs of Q1 were the XLE, XLP, XLU, and XLV sectors. That's energy, staples, utilities, and health care. There's various reasons for this from demand destruction, currency losses, supply gluts, and a threat of governmental margin squeezes (think health care.) Out of them all I think XLU probably offers the best risk/reward. The risk in my eyes is the capital expenditures for grid improvements. The reward strangely enough could come from that as well if the government finances it all, and you could get the benefit of increased Industrial Production.....if and when that happens.
• Iron ore swaps are coming soon. This comes at a time when the ore producers may have to cut prices by 50%. Of course this comes on the heels of several years of astronomical prices hikes. I suspect this has been know for a while as the steel stocks have started to improve. While they continue to cut production their input costs are falling faster than their finished product. When demand picks up there will be a lag as supply comes back on. That's when you'll see the margin improvements that will move eps upward. This industry should be troughing soon if not now. Dependent upon autos, commercial RE, as well as industrial production, and oil prices. China can't carry the world.....remember there is no such thing as decoupling.
• Venture capital investments down by 61%. Lowest in 12 years.
• PBS' Frontline had a great piece on the meltdown. If you lived it tick by tick like me it's the best depiction of exactly what happened. Seems that all the ranting I was doing back then was not in vein. My favorite quote from a friend came on Sep. 7th when they took FNM and FRE into conservatorship. "What do you care it's not going to effect you." The inter connectivity of 5T of mortgage debt does effect me and us all when banks and other hold preferred shares as capital on their balance sheets. That became clear when Lehman imploded 8 days later. Honestly I felt like a doomsday sayer back then. Now I'm more optimistic and it seems with all these explanatory pieces out the understanding of the masses has finally developed. And you never want to go with the crowd for any sustained period. They are prone to fads and usually buy the top and sell the bottom....every time! http://www.pbs.org/wgbh/pages/frontline/meltdown/view/
• A paired trade I ran across that could be of interest is shorting emerging markets and getting long the SP500. This could be achieved by either shorting EEM and buying SPY. Or you could buy EEV and buy SPY. My issue with this could be the timing, but then again that may be the brilliance behind it. Hmmmmm.
• Quants got whipsawed in March. Surprise, surprise! So there is two ways to read this. The move up was a huge short squeeze hence all the 90% up days that we saw. Or you could read it as the rally will continue on as the quants are all positioned long and will keep pushing long as pensions and funds put money back to work.