Wednesday, April 30, 2008

Random Thoughts for the Day -- "Tickets Please"

Here are some random thoughts for the day.

1. Eagles had a mediocre draft. DeSean Jackson was a feature story on the NFL network, where he apparently works out with Jerry Rice, so this is a nice pick. Hopefully he can adjust to the speed in the NFL.

2. The FOMC meeting ends today. The Feds Funds futures predict another 25 point cut, but its unclear whether the market will move higher in meaningful form. Most are now trying to determine if the market is discounting all the bad news, or if more lies ahead. The beauty of calling the chance for "recession" publicly then allows investors to expect, vs. be surprised by, the missed or lower earnings guidance that has come out in 1Q 2008. The market will no doubt move higher, but sometimes a head fake is just that. Take a look at the charts below that show the put/call ratio (thanks to and the VIX index vs. the S&P500 time series data (the . Simply, the Put/Call ratio >0.80 is a bearish sentiment. The VIX is a volatility index that shows market sentiment as well, and often this index moves inversely with the S&P500.
3. Does anybody else think that someone in the Clinton camp is paying the pastor that is sabotaging Obama's chances in November? Or maybe it's just an egomaniac with his 15 minutes.

4. Ironic: The collapse of Bear Stearns' 2 hedge funds last July was the beginning of the market dislocation we've watched unfold, but it may be way too early to call the government's bailout of Bear (vis-a-vis JP Morgan) and the bailout of the consumer (the stimulus checks) the bottom.

5. Credit Default Swaps are contracts between two parties where the buyer is buying protection on a corporate debt security ("corporate bond") in the event that a corporation goes bankrupt. If I own a bond issued by Bear Stearns, I can also buy protection on that bond in the form of a CDS. The seller pockets the price I pay him for the CDS, and if nothing happens, he walks away with my money. But if Bear goes bankrupt, and can't make it's coupon payments to me on their bond I own, then the seller of the CDS agrees to pay me for the value of the bond. It's insurance, plain and simple. The price of that protection moves with demand; the price for these CDS on Bear (or any other corporation) will change, and as the risk of default goes up, so too goes the price. The seller is now taking on the risk, and must be compensated for this risk via a higher CDS price.

If you had monitored Credit Default Swaps for Bear leading up the government's bailout, you may have known something was up, it's why the press and media picked up on the rumor. Below is a snapshot posted on Hussman's Weekly Commentary that shows the price of a CDS contract for Bear leading up to and following the announcement of the bailout.

5. Speaking of the Eagles, where is Freddie Mitchell, and his "perfect hands" these days, anyway? He's supposedly taken on the noble profession of substitute teacher in Indiana.

6. CNN can be a great barometer of what the world wants to read about from a quasi-news sense. There is an absolutely horrible story about what is unfolding in Austria. It is hard to imagine the monsters that walk this earth. If anyone ever hurt my child, I know I go off like the Samuel L. Jackson character in John Grisham's "Time to Kill", trust me.

7. The Dallas Mavericks and the Phoenix Suns proved that team chemistry and the team concept is more important than any one player in basketball. From a trade perspective, sometimes doing nothing is better than doing something, just look at value creation in mergers & acquisitions in the business world as an example....Both teams got bounced from the 1st round playoffs, and both traded the future for now to get Jason Kidd and Shaq respectively.

Final Random Thought: I ride the train every evening, and after grabbing a seat, I email Erin to let her know what train I'm on, and then settle in with some reading for work, etc. Most nights the train conductor is fairly quick to get to our car to check for our tickets. But, like all of my fellow train passengers who are creatures of habit, we wonder where the conductor is when they don't show up in a normal amount of time, pretty Pavlovian. Since I always sit in an aisle seat, last night it occurred to me that waiting for the conductor is like sitting at a wedding waiting for a bride. It was funny, cause I looked up and down the aisle, and we were all looking back to see where the conductor was. "Tickets Please," is like the commuters version of wedding music. It was damn funny, but I guess you had to be there.