Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

Archive for August 2007

peering into bondland

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I was checking prices lately in bond land and Countrywide paper is being offered at DEEP discounts (like 15% yield for 1 year,etc.) This is a reaction of investment advisors, acting in the clients best interests, to get rid of that waste BEFORE a, ahem, serious liquidity event.

Also, I’m seeing that FNMA and FHLM bonds (which have an implied AAA rating and assume a taxpayer backing) are trading at yields than mere-mortal corporate bonds of lower rating (A or AA). This tells me a) again investment advisers are dumping their headaches or b) the implied-AAA isn’t quite as powerful as thought.

Also, a huge stock rally shouldn’t surprise us. It’s been oversold lately, and the bulls feel that the Fed is protecting their backside, urging them along. Prices don’t lie, but keep stop losses tight to stay in the game.

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Written by heyercapital

August 20, 2007 at 9:04 pm

At least something already looks like 1987

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From Mish Shedlock, one of the sharpest tools in the shed, and definitely worth your RSS feed. (Ask your kids and grandkids if you’re not sure what your RSS feed is. No, it’s not a new Monsanto concoction.)

http://globaleconomicanalysis.blogspot.com/2007/08/no-bids-for-corporate-bonds.html

Flight to Safety

Earlier today I noted there was a Flight to Safety as the yield the one-month Treasury bill fell 160 basis points to 1.34 per cent. The yield on three-month Treasury bills tumbled to 2.51 per cent, 123 basis points below Friday’s close – a sharper fall than during the October 1987 stock market crash.

Written by heyercapital

August 20, 2007 at 8:59 pm

Is your money market safe?

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I figured that before this debt and credit addition is all said and done, we’re going to have notable corporate bankruptcies. I just didn’t think we’d get one so quickly.

Is your money market account safe? A large money market provider in Chicago filed for bankruptcy late last Friday after its big bets went awry.

Ask your broker these questions (copy and paste if you want):

“As soon as possible, please reply in writing to my address of record to these questions:

1) Is my sweep settlement account a money market fund or a money market demand account? Is it insured by SIPC or FDIC? What limits apply?

2) Has the investment adviser, investment manager, or principal for my money market fund or sweep settlement account ever defaulted or “broke the buck” on a money market fund?

3) Does the duration of investments within the money market fund match that investment objectives of the fund.

4) Have you heard any information as to the safety of my money market?

5) Is there a course of action you would recommend?

Thank you for your prompt attention to this important matter.”

If your broker doesn’t respond immediately with the answers, he’s either
a) hiding under his desk counting the gold doubloons;
b) ducking your question;
c) doesn’t know;
d) doesn’t WANT to know; or
e) in Vegas at a sales contest victory party.

By the way, your broker’s first inclination will be (because of human nature) to crap his pants and wonder himself, is his own money market safe? When he finds that out that answer, he will gladly let you know.

Written by heyercapital

August 20, 2007 at 9:56 am

Thanks Central Banks!

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Here some perspective: Central banks injected $300 billion into the world in the past nine days (as of Friday 8/17).

Total avg daily GDP for Canada, EU, USA is roughly $80B per day.

Central banks created $300B.

Total GDP for that nine day period was $720B.

Yep, 40% of the total genuine economic output for that period was wiped out by inflation, e.g. false money created out of thin air.

Somebody is scared.

And no, I don’t think years of Wall Street’s credit addiction and wildly manufactured whiz-bang financial products can be liquidated, resolved, and otherwise corrected in just 20 days.

Also, please note that when it comes down to chosing between a) fighting inflation and b) saving Wall Street, the Central Banks will leave the pensioner dangling every time.

Two solutions for you: Read here. Read here.

Written by heyercapital

August 20, 2007 at 9:38 am

leaving no doubt

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You’ve heard by now about the Fed’s discount rate cut. It wasn’t the usual 1/4 point. It was a full half point. They were going for the bears’ carotid arteries with this action.

The Fed cut rates this morning before the market opened. Why time it like that? Today (Friday Aug 17) was futures options expiration day. The exercise price was the opening print of prices this morning. By announcing the rate change before the market opened this morning (after yesterday’s afternoon monster recovery) they guaranteed the bears would get skinned by an additional 2.5%.

In case you had any doubt the Fed manipulates the market for the benefit of politicians, this ought to help you decide.

By the way, they lowered the discount window rate, which is the rate the Fed charges for big banks that want to borrow money from the source. Their action only helps struggling banks. If they wanted to help the economy [sic] they would have changed the fed funds rate, which affects all bank, healthy or otherwise. Their inaction in the fed funds rate also leave them the future opportunity for yet another headline intervention.

Just Wednesday Fed Governor Poole said any Fed action before a regular meeting would not be desirable. They wouldn’t act unless something cataclysmic occurred. Actions speak louder than words here.

Also, gold and silver sold off hard lately. In a credit crunch, cash is king, and desperate investors sell whatever they can get their hands on. In any market turmoil, use someone else’s radically changing preferences (or forced selling) to improve your own positions.

Written by heyercapital

August 17, 2007 at 3:20 pm

easy does it

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Wow. I had the distinct pleasure today of having a client sit with me in the trading turret while the market was, well, getting volatile. It’s nice sitting on cash, let me tell you.

You can tell they were grasping for all the cash they could because even precious metals (which you would THINK would be the place to be in a flight to safety) sold off hard. Yep, this is a good old fashioned credit crunch.

The last one snapped Citibank in half from its summer 1990 highs to early October. Keep your powder dry, and your wits about you.

Today finished like a capitiulation. Put-call ratio spiked today. Decent names getting slashed 5-15% intraday. Emergency cash-infusions. Bankruptcy rumors. Despair in the morning, high-fives at close. Somehow, though, I don’t think bottoms are marked with high-fives. Perhaps intermediate lows. I’ll give a nod to the March rally which started with a day such as today.

What’s ‘funny’ about the markets is that Wall Street knew about all the subprime issues, housing bubbles, Iraq-Iran, etc. and all the worries the world three months ago. But it didn’t matter then. Things don’t matter on Wall Street, until the prices say they do matter.

Sometimes, we try to squeeze ahead of the Street’s brains and computing power. For me, I say let the price action tell you when it’s ok. As it’s said, it’s easier to make up lost opportunities than to make up losses. Use this downtime to research your watchlist. Strong stocks holding their heads up above this muck are good places to start.

Written by heyercapital

August 16, 2007 at 10:41 pm