David's Feed
Aug 8, 2014
via Counterparties

MORNING BID – ‘You don’t wanna go long into the weekend’

Get ready for one of those days where people say a lot about not wanting to be “long going into the weekend.” Except perhaps in bond markets, where the rush to government debt intensified with President Obama’s remarks that the US is ready to provide air support through airstrikes against ISIS, which now controls a big swath of Syria and Northern Iraq. That’s forced a big move into U.S. and German yields, among other things, which is undermining some of the recent strength in the dollar as well. (That’s not to say it’s a strong-euro move, more of a weak-dollar move, given the declines in the dollar against the yen as well.)

What’s striking here about the rallies in U.S. debt and German debt is that even though there’s a substantial safe-haven bid behind both markets, the difference is the German 2/10 spread has narrowed from about 1.73 percentage points to 1.04 percentage points since the beginning of the year thanks to a big move in the 10-year, a bull “flattening” trade that reflects ongoing concerns about economic growth in Germany, and more broadly, in Europe.

Aug 7, 2014

Analysis – It may be too early to give up on the bull market in equities

NEW YORK/LONDON (Reuters) – Investors fretting about the possibility of a big reversal in global stock markets may just want to borrow a slogan from the British – and just keep calm and carry on.

It won’t be easy given the background noise. Fears of a Russian invasion of Ukraine on top of deepening chaos in the Middle East, and the bailout of a Portuguese bank, are all fuelling the pessimism. Add in expectations the U.S. Federal Reserve will raise interest rates next year for the first time since 2006, and concerns that the U.S. stock market has gone too long without a correction, and it isn’t surprising to see the glass half-empty crowd emerging from a long hibernation.

Aug 7, 2014

It may be too early to give up on the bull market in equities

NEW YORK/LONDON (Reuters) – Investors fretting about the possibility of a big reversal in global stock markets may just want to borrow a slogan from the British – and just keep calm and carry on.

It won’t be easy given the background noise. Fears of a Russian invasion of Ukraine on top of deepening chaos in the Middle East, and the bailout of a Portuguese bank, are all fueling the pessimism. Add in expectations the U.S. Federal Reserve will raise interest rates next year for the first time since 2006, and concerns that the U.S. stock market has gone too long without a correction, and it isn’t surprising to see the glass half-empty crowd emerging from a long hibernation.

Aug 6, 2014
via Counterparties

Murders and Acquisitions

People tend to like to see a couple of occurrences and call them “canaries in the coal mine,” a signal of something ominous to come.

Twenty-First Century Fox’s decision to cancel its bid for Time Warner, which was quickly followed by Sprint backing away from buying T-Mobile, certainly could count as one of those things, given the way in which mergers and acquisition signal confidence about an industry, about company earnings, about the economy.

Aug 6, 2014

Investors betting on takeover of Time Warner face ugly reckoning

By David Gaffen

(Reuters) – Many options traders who had taken bets on a successful buyout of Time Warner Inc (TWX.N: Quote, Profile, Research, Stock Buzz) by Rupert Murdoch’s Twenty-First Century Fox Inc (FOXA.O: Quote, Profile, Research, Stock Buzz) are facing a grim lesson in the risks of betting on deals.

Murdoch pulled the $80 billion offer after the close of trading on Tuesday, saying Time Warner management had refused to engage in discussions. He also cited the sharp drop in Fox’s share price since the proposal last month, saying it “makes the transaction unattractive to Fox shareholders.”

Aug 5, 2014
via Counterparties

MORNING BID – Once Upon a Dream

Disney is expected to report third-quarter results after market close and is likely to beat average analyst estimates, according to StarMine. The media company’s results could get a boost from “Maleficent”, its revisionist take on “Sleeping Beauty” featuring Angelina Jolie, but the company’s prowess doesn’t end there, not with “Captain America: Winter Soldier” also a box-office champ in 2014 – which was also released during its most recent reporting period.

The studio budget for Maleficent was said to be somewhere around $180 million, so it’s not as if this was a cheap one, but consider that it posted worldwide grosses of $727 million, ranking it third for 2014, with the fourth-place film being Captain America (which cost $170 million), and also came through through Disney’s Buena Vista studios, per BoxOfficeMojo data.

Aug 4, 2014
via Counterparties

MORNING BID – Recipe for a correction

The ingredients have been in place for some time for a correction – it’s only taken some kind of spark to ignite them, and yes, it’s a bit early for such mixed metaphors. The market has dipped 3.2 percent from its highs, and while that’s not all that much, it’s enough, as Dan Greenhaus of BTIG puts it in late Sunday commentary, to generally result in a bit of dip-buying. That said, the softness of late in auto sales and some really ugly housing data does point to the possibility that the economy’s direction is just squishy enough to warrant a bit more of a pullback, and Greenhaus, one of the Street’s more reliable bulls right now, says even his firm doesn’t “have high conviction right now” as far as a rally.

With the Russell 2000 having given up a more significant portion of its gains — this small-cap index was a super underperformer throughout July and hasn’t really distinguished itself for all of 2014 — and the earnings season for the most part starting to wind down (particularly for bigger names) there doesn’t end up being a lot of real good reasons to take the market higher right now. Sure, investors on some levels may start to put money to work, but given the thin volumes the appetite for additional risk is probably going to be muted. The one exception may be from foreigners, who will probably keep pushing money to the U.S. market, in part because of favorable interest rate differentials.

Aug 1, 2014

Massive, unusual options volume Friday confounds Wall St

Aug 1 (Reuters) – A barrage of bearish options contracts
costing an estimated $8 million and nearly certain to expire
worthless at the end of Friday’s session were purchased across
multiple stocks Friday afternoon in a move that traders said
made no sense.

After 1 p.m. EDT (1700 GMT), more than 700,000 put options
contracts were traded across a number of different stocks,
including Priceline, Chipotle Mexican Grill and
others, most of which expire at the end of Friday’s trading,
according to Henry Schwartz, president of Trade Alert LLC.

Aug 1, 2014
via Counterparties

MORNING BID – The economic state of things

The jobs report takes a bit of heat off of Thursday’s selloff, which was predicated in part on some nonsense out of Europe and more importantly some kind of growing consensus that the economy is getting hot enough that it might force the Federal Reserve to start raising rates a bit earlier than expected, given a sharp and unexpected rise in the employment cost index on Thursday. And while it’s fair to suggest the stock market has gotten a bit ahead of itself when the Fed is rapidly moving toward the end of its stimulus policies, it’s also possible that stocks have gotten ahead of themselves for a far more prosaic reason – the economy isn’t strong enough to support the kind of valuations we’re seeing in equities right now.

That’s not to say we’ve got bubbles all over the place in stocks – they’re pretty few and far between – but credit standards in various places have loosened, and if the Fed starts raising rates we’re going to see a pretty quick reversal of that before long. There are significant signs of concern emerging in places like the high yield market, which has dropped off sharply in recent days, particularly among the weakest credits, and the housing and auto markets, which are better leading indicators than the jobs data, also suggest that the slack credit standards may end up hitting a wall before long.

Jul 30, 2014
via Counterparties

MORNING BID – On GDP, the Fed, Argentina, and lots of other things

To paraphrase Kevin Costner in Bull Durham, we’re dealing with a lot of stuff here. The U.S. economy did end up rebounding in the second quarter, with a 4 percent rate of growth that’s much better than anyone anticipated – and the first-quarter decline was revised to something less horrible, so investors worried about the economy are a bit less freaked out at this particular moment.

Of course, that still means that the economy only grew 0.9 percent in the first half of the year, and that’s not all that amazing, but the economy in the second quarter grew in areas that matter the most – business spending, consumer spending and to a lesser extent government, which was such a drag on GDP for a good long time that can’t be just ignored. In tandem with the GDP figure, the ADP report said 218,000 jobs were added for private payrolls for July, another strong month that portends a good showing out of the Labor Department figures on Friday. That’s all at a time when the housing indicators continue to weaken, which is still a concern, and some even believe that auto sales have probably hit their apex as well for this cycle, given so much of the buying was based on incentives, but we’ll get better clarity on that on Friday.

    • About David

      "David Gaffen oversees the stocks team, having joined Reuters in May 2009. He spent four years at the Wall Street Journal, where he was the original writer of the web site's MarketBeat blog. He has appeared on Fox Business, CNN International, NPR, and assorted other media and is the author of the forthcoming book "Never Buy Another Stock Again.""
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