Friday, May 27, 2011

The Market As Proxy For...

"...and, it would not be fair to conceal from you, there is a drawback to the bottle; for if a man die before he sells it, he must burn in hell for ever."

"To be sure, that is a drawback..."

Quote from The Bottle Imp, by Robert Louis Stevenson

This market seems to be a proxy for nothing but itself; the current risk appetite of the day curbed or stoked by breaking headlines but immune to the horrors trending over the long term. Even with a month to make some stuff up, our government couldn't infuse enough red blood cells to shoot our GDP up to 2%. There just might be an understated drawback to our debt and QE2. As MarketWatch's Brett Arends pointed out this week, it has been a failure. GDP has dropped over the last year, the change in unemployment has been a simple conversion of part-time laborers to full-time laborers on a small scale at a cost of $850K/job, and consumer staple inflation has risen significantly during that time. Meanwhile, housing has taken another dump with the tsunami of never-ending foreclosures and unlisted defaults causing a permanent hairball in the banking drain.

So, what are the actionable trades given that this market just doesn't care? First, let's look at a basket of losers. RIMM I pointed out in my last post along with Sears as companies that are just stuck in businesses losing market share and momentum. We can also add CSCO to that list, who, along with MSFT, continue to falter despite hoards of cash. First Solar has nose-dived from $175 to under $120 in a business I think people continue to overestimate as a future cash cow. Add in Chanos' drum beating this thing down to "mid double-digits," and FSLR looks like a good short, again.

On the long side, two names are worth revisiting. Having failed to pull the trigger (name it, anytime would've been a good time since it hit .10), Sirius LEAPS still look attractive. If Malone can push them through their debts until next year, SIRI should continue to rise on improving car sales and pricing. Jan 13 $1.50 calls are trading at a measly 6% premium to current price, as are Jan 12 $2 calls. Jan 12 $1.50 calls are basically at par with today's price of $2.37. And, dare I say Citi, after falling below $40 (or $4 really) this week, might be worth some longer dated calls as they are cheap and traders seem to still love this stock as a day-trading tool with nice liquidity.

2 comments:

Tiger Coach said...

A simple note my friend that Bill Clinton has now joined the ranks of the Peterson Foundation. He with many other movers and shakers are ringing the death knell of debt... Either we will see a rise in taxes... a massive cut in entitlements... or methinks a combination of the two...

prepare your ark... develop cash flow now... and we will be swept away but the flood of change that is sure to hot us all...

some type of cash flow system is the key... and I am certain a few industries will stand the test of time...

SLV and GLD will be in play as early as June once the debt ceiling is raised... after all... what's another trillion or so?
new address...chk your email.

AX said...

Thanks, TC. Interesting plunge today but as I noted 5/13, triple digit moves will become commonplace and have. Window dressing yesterday getting smashed while gold remains strong. Can the govt trump the ADP # again this month in light of horrible gdp and economic news?