Nuclear shares tempt opportunists but risks abound
CHICAGO/NEW YORK (Reuters) – Buying on bad news has often reaped rewards for investors and the Japanese earthquake seems to be such an opportunity, but a possible meltdown at some nuclear plants makes this a riskier gamble than most.
Options bets in major uranium stocks show some don’t view Monday’s selloff as an automatic buying opportunity.
Japan is still struggling to avoid a meltdown at some nuclear power plants after a hydrogen explosion at one reactor and exposure of fuel rods at another, days after the earthquake and tsunami which may have killed at least 10,000 people.
Shares of nuclear energy companies were hit hard Monday. Exchange-traded funds tracking the sector fell sharply on record volumes as investors fled. The Global X Uranium ETF fell nearly 17 percent on 2.9 million shares and the Market Vectors Uranium and Nuclear Energy ETF lost 12 percent with 2.4 million shares traded.
“I think this is a major long-term fundamental shift in the marketplace,” said Shawn Hackett, president at Hackett Advisors in Boynton Beach, Florida. “Many will say it is an overreaction and of course we might get a bounce in uranium prices once things settle down but overall I think this a fairly bearish intermediate-to-long-term shift in psychology.”
One favorite among options investors has been Cameco Inc., because its options are already heavily traded. U.S.-listed shares of Cameco, the world’s second largest uranium miner behind Kazamtomprom, owned by the government of Kazakhstan, fell 13 percent in active trading on the New York Stock Exchange, but options action was heavy in both bullish and bearish positions.
“Option traders are playing both sides of the fence,” said TD Ameritrade chief derivatives strategist Joe Kinahan.
Analysis: Betting on nuclear shares a gamble
CHICAGO/NEW YORK (Reuters) – Buying on bad news has often reaped rewards for investors and the Japanese earthquake seems to be such an opportunity, but a possible meltdown at some nuclear plants makes this a riskier gamble than most.
Options bets in major uranium stocks show some don’t view Monday’s selloff as an automatic buying opportunity.
Japan is still struggling to avoid a meltdown at some nuclear power plants after a hydrogen explosion at one reactor and exposure of fuel rods at another, days after the earthquake and tsunami which may have killed at least 10,000 people.
Shares of nuclear energy companies were hit hard Monday. Exchange-traded funds tracking the sector fell sharply on record volumes as investors fled. The Global X Uranium ETF fell nearly 17 percent on 2.9 million shares and the Market Vectors Uranium and Nuclear Energy ETF lost 12 percent with 2.4 million shares traded.
“I think this is a major long-term fundamental shift in the marketplace,” said Shawn Hackett, president at Hackett Advisors in Boynton Beach, Florida. “Many will say it is an overreaction and of course we might get a bounce in uranium prices once things settle down but overall I think this a fairly bearish intermediate-to-long-term shift in psychology.”
One favorite among options investors has been Cameco Inc., because its options are already heavily traded. U.S.-listed shares of Cameco, the world’s second largest uranium miner behind Kazamtomprom, owned by the government of Kazakhstan, fell 13 percent in active trading on the New York Stock Exchange, but options action was heavy in both bullish and bearish positions.
“Option traders are playing both sides of the fence,” said TD Ameritrade chief derivatives strategist Joe Kinahan.
Japan quake to keep stock investors wary
NEW YORK (Reuters) – The devastation in Japan is set to worsen the negative short-term sentiment gripping a vulnerable U.S. stock market, with companies exposed to Japan and the nuclear energy sector likely to take the biggest hits.
The disaster brought on a flurry of short bets against Japanese stocks on Friday, and that trend could well accelerate on news of deteriorating conditions in Japan over the weekend.
The massive earthquake and tsunami are now estimated to have killed 10,000 people and left officials scrambling to avoid meltdowns at three nuclear reactors.
U.S. investors are likely to further their bearish positions in options on the iShares MSCI Japan Fund (EWJ.P: Quote, Profile, Research, Stock Buzz) as well as buys of the ProShares UltraShort MSCI Japan (EWV.P: Quote, Profile, Research, Stock Buzz).
The EWV exchange-traded fund aims to return to the investor double the opposite of whatever the MSCI Japan does, so when the index rises 1 percent the ProShares should go down 2 percent. Volume in that ETF hit a record on Friday.
The effects on the broad U.S. market are harder to determine. The S&P 500 fell below its 50-day moving average last week and support appears to be waning, despite a rally on Friday.
Investors are likely to focus on the ramifications for energy companies, particularly nuclear power. Japanese officials said there may have been a partial meltdown at the No. 1 reactor of a nuclear plant in Fukushima.
Uncertainty feeds a surge in U.S. options trades
CHICAGO/NEW YORK, March 4 (Reuters) – The equity options market has attracted a huge crowd of U.S. investors trading in a marketplace where daily surprises come from all parts of the globe.
The stock market has been resilient, but the threat of rising oil prices has tempered bullish enthusiasm, judging by lackluster share volume on days when stocks have rallied.
“The recent see-sawing in the market has led to an increasing number of investors saying ‘I don’t know’ when it comes to their market forecast.” said Jason Goepfert, president of sentimenTrader.com.
Those worried about doubling down on the big market gains are using options to stay in the game. While February is usually a quiet month for trading, February 2011 exchange-listed volume was up 35 percent from the year-ago period at 354.2 million contracts, the eighth heaviest month ever.
Options are still relatively inexpensive, so investors can shift to option strategies to get upside without risking the money they would in the cash market.
The Standard & Poor’s 500 index .SPX has gained 27 percent since Sept. 1, and corrections have been mild.
Lately, though, the rally has stalled. So some investors can remain bullish, but hedged, by selling some stocks and buying call options, contracts that give the right to buy the stock at a fixed price any time up until expiration.
Warren Buffett’s enthusiasm for U.S. could boost markets
NEW YORK (Reuters) – Warren Buffett is going long on America, and investors are likely to take note when markets open on Monday.
Buffett’s annual letter, released Saturday, is brimming with references to the strength of the American people, economy and spirit.
Investors said they were struck by how confident the letter was, particularly in comparison to his annual missives of recent years.
“Money will always flow toward opportunity, and there is an abundance of that in America,” said Buffett, who has run Omaha, Nebraska-based Berkshire Hathaway since 1965 and is now one of the world’s richest men.
“The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential … remains alive and effective.”
He also forecast a recovery in the housing market “within a year or so” and that “America’s best days lie ahead.”
Given that Buffett owns the entirety or a large share of the country’s largest railroads, insurers, banks, consumer products makers and distributors, his optimism could be seen as an endorsement of the economy in 2011 and beyond.
Buffett enthusiasm for U.S. could boost markets
NEW YORK, Feb 27 (Reuters) – Warren Buffett is going long on America, and investors are likely to take note when markets open on Monday.
Buffett’s annual letter, released Saturday, is brimming with references to the strength of the American people, economy and spirit.
Investors said they were struck by how confident the letter was, particularly in comparison to his annual missives of recent years.
“Money will always flow toward opportunity, and there is an abundance of that in America,” said Buffett, who has run Omaha, Nebraska-based Berkshire Hathaway (BRKa.N: Quote, Profile, Research, Stock Buzz) since 1965 and is now one of the world’s richest men.
“The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential … remains alive and effective.”
He also forecast a recovery in the housing market “within a year or so” and that “America’s best days lie ahead.”
Given that Buffett owns the entirety or a large share of the country’s largest railroads, insurers, banks, consumer products makers and distributors, his optimism could be seen as an endorsement of the economy in 2011 and beyond.
5 Questionable Arguments Against the Double-Dip
Don’t tell George Costanza, but double dipping is all the rage these days. The possibility of the U.S. slipping back into recession after a brief period of growth is a hot topic of late – and while such an occurrence is unlikely, pundits are feverishly declaring that it can’t and won’t happen.
Here are some of their reasons, some of which appear to strain credulity:
- Double-dips are “rare.” Simon Hobbs of CNBC is a vigorous promoter of this idea, but let’s face it, the last 15 years of financial-market history is a veritable compendium things that no one expected to happen – LTCM, the financial panic, Lehman Brothers. Rare means nothing.
- The stock market hasn’t dropped enough. Ah yes, the stock market, that stellar indicator of the economy’s future, such as in October 2007, when it hit an all-time high, two months before the onset of the worst recession since the Great Depression. Next.
- The yield curve hasn’t flattened enough. This indicator comes with a bit more in the way of history, as a flattened/inverted yield curve has been a reliable indicator of economic weakness ahead. But the Federal Reserve is anchoring the short end of the curve to the ground with its zero interest rate policy. It complicates the curve’s predictive value – something Goldman Sachs noted in a morning commentary.
- “External shocks” are responsible for the declines in economic activity, such as that in Europe. Similar shocks were enough to spark recessions in the 1930s, 1970s, and in 2008. Everything’s connected now, remember?
- Corporate profits are strong. As they were all the way through the beginning of 2007, once again, before the most recent eruption.
A recent Reuters poll put the odds of a double-dip recession at about 15 percent. Gluskin Sheff’s bearish strategist David Rosenberg puts it around 50-50, and Jim Bianco of Bianco Research also put that kind of odds on it. It may not happen – but when a lot of people are trying to convince you that something’s not going to happen, it can make you believe that it’s more likely than not.
Regulate Us? We’re Hurt.
The popular image of Wall Street institutions involve swagger: the ability to absorb the competition’s blows, taking no prisoners, raking in the money… until it seems like the government could force them to rein in their excesses. It’s at that point that Wall Street’s tough guys suddenly sound wounded.
In Tuesday’s Wall Street Journal, an article about the derivatives legislation being considered in Washington has this comment from Bank of America spokesman James Mahoney—the bank is “concerned that we won’t be able to provide our customers with financial products they need to manage risk and grow and that foreign banks will step in and take that business.”
There are several layers of bruised egos at work here – the assertion that America’s economic future is imperiled by the regulation of derivatives, and the boogeyman specter of a “foreign bank” that will take over. Add the obligatory reference to customers (which recalls the braying from various corners about how the threat to BP’s dividends are really an attack on “pensioners” and “retirees”), and there’s a lot of guilt being laid on in the statement.
Our question: Is Bank of America right? Every time the government gets ready to regulate any business, members of those communities warn of doom, apocalypse, you name it, and start using buzzwords like “risk appetite” and “free markets,” no matter how stifling those things can be if left completely unchecked.
Kevin Flynn of Avalon Asset Management put it well in his commentary this past weekend: “Talk of regulating any derivatives market, and the players immediately get on the phone to the press and politicians, feeding them lurid tales of vanishing liquidity and withering markets, killing all hope of economic recovery.”
Are we at such a pivotal moment on Capitol Hill? Or did Chicken Little just open a checking account at Bank of America?
PIMCO’s El-Erian: Further ECB action needed in Greece
NEW YORK, June 15 (Reuters) – Greece’s deepening credit crisis could force the European Central Bank to purchase additional debt of the troubled eurozone nation, the chief of the world’s largest bond fund said on Tuesday.
“I think what we are going to see over the next few months is the ECB having to buy more and more Greek bonds,” Mohamed El-Erian of Pacific Investment Management Co, PIMCO, told Reuters Insider television.
The ECB had about 25 billion euros ($30.8 billion) of Greece’s mountain of debt on its books at the end of May and is adding another 2 billion euros a day, on average.
Greece’s troubles have continued, however.
On Monday, Moody’s Investors Service downgraded Greece’s credit rating four notches into “junk” bond territory. Greece’s debt load is forecast to reach 149 percent of gross domestic product by 2013.
El-Erian said the ECB purchases come with a price.
“At some point, and it is very hard to predict when, there’s going to be concerns about the institutional integrity of the ECB. People are going to say, ‘Wait a minute, it is a monetary authority. What’s it doing in the quasi-fiscal world? What’s it doing acting like a fiscal agency?’”
BP’s U.S. shares plunge on spill liability fears
NEW YORK/SAN FRANCISCO (Reuters) – BP Plc (BP.N: Quote, Profile, Research) (BP.L: Quote, Profile, Research) shares tumbled nearly 16 percent on U.S. exchanges to a 14-year low on Wednesday on rising fears about how the wounded company will cope with the massive costs of the Gulf of Mexico oil disaster.
The stock has now lost more than half its value since the April 20 explosion that sank a BP-contracted rig and led to the worst oil spill in U.S. history.
A steady flow of worsening news about the damage to the Gulf Coast environment and BP’s reputation, along with the potential liability and political fallout, has cast doubt on the British company’s ability to shoulder the burden.
The dramatic sell-off on Wednesday added grist to the mill for corporate restructuring experts wondering about BP’s long-term viability, while other analysts pointed to an evaporation of investors’ patience.
“The confidence in BP being able to stop the oil leak and deal with the ecological aftermath has disappeared,” said Joe Kinahan, chief derivatives strategist at TD Ameritrade.
Concerns about BP having to halt its dividend contributed to the selling, and the U.S. Justice Department said late on Wednesday it was concerned about planned payouts from BP and Transocean Ltd (RIGN.S: Quote, Profile, Research), owner of the lost rig.
In the past two days alone, seven analysts have cut their expectations on the likely payout from BP.
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