I don't know.
My inclination is to think that it is too soon to know whether the Fed successfully engineered a soft landing or not but the GDP number seems promising.
I'm sorry, what was that? The Chicago number was what? No, I'm sorry that gets in the way of the greatest story never told.
I have not been in the soft landing crowd because it happens so rarely. I would be thrilled to be wrong but I don't think this is resolved just yet. Further will all of the statistics floating around about how long it has been since an x% correction over xtimeperiod I feel no rush to invest every last nickel.
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10 comments:
Roger,
I have an unrelated (but topical/practical) question regarding options that hopefully other reading might find interesting. You answered it generally before but want to cite a concrete example...
I own some Altria LEAPs, with the today announced spin-off date on March 30 (record date March 15), how do these options get treated? Does the strike get adjusted, do I get Kraft LEAPs (yuck) or some combo.
Is there anyone to call for sure? My broker does not seem to know squat...
Thanks!
AI
PS I like the tags!
Disclosure: clients own MO.
What should happen is you get a combo. To make this easier; A call struck at 90 before the spinoff controls $9000 worth of stock (100 shares times $90).
After the spinoff the option will still control $9000 worth of stock but instead of $9000 being based on 100 shares of MO it will based on a conbo of 100 MO and 70 KFT.
So, after the spinoff 100 MO plus 70 KFT will either be more or less than $9000. If more then the option will be in the money if less then out of the money (note I said call option).
Invariably people will see strikes of 85 or 90 think the premium is so fat becuase the stock (just MO) will be much less than 90 and they will try to sell calls and they will get burnt.
Fair warning.
Re: Chicago numbers. Maybe it is the warm weather.
WSJ reported that Japanese consumber numbers were down because they had a warm winter: so nobody bought winter clothes. Of course the US had good consumer numbers because we had a warm winter.
And oil supposedly went up because it turned cold in January (?).
There is too much noise in these numbers. Tranport and industry have been trending down. Most of the other numbers are either frequently revised, lagging indicators, or useless (consumer sentiment). Mississippi, and Luisianna are still a mess and the money to repair them is flowing very slowly (almost not at all).
If you combine the residential realestate drop, with the problems of the Katrina areas, you have a pretty large anchor weighing down your soft landing.
Roger,
Thanks. So, if I do not want to sell my current MO LEAPS (and i don't like Kraft), then I should short Kraft... or sell some Kraft calls...
Thanks again,
AI
The question I have is soft landing from where? That term suggests that the economy had shifted from growth to perhaps near recession. I have seen no indication that we've come anywhere near a recession, so how are we landing? Seems like we're still flying to me.
As long as credit expansion (money creation) continues at this pace it's hard to imagine the markets falling. Equally hard to imagine how tremendous the growth in asset prices would have been if real value (e.g., productivity) were being created.
As it is, we see a point to the indexes tacked on here, a point tacked on there, and all it means it another loan, swap, CDO, etc. was generated. There is so much leverage now that it's hard to tell how long this could run on but the hardest thing to imagine really is what things will look like when all the debt comes due.
This has not been an easy market for a fundamental, value-oriented investor to understand.
But soft landing? Sure, why not ...until it isn't any more.
In the meantime I don't mind making a buck or three and have been but not sticking my neck out too far you may be sure; swing trades where risk/reward looks good -- small positions w/ stops a std deviation away or less -- the rest long, well diversified and hedged to the armpits.
It would be lovely to be able to buy the following information: The number of undocumented workers who have already lost their jobs in the housing industry.
Presuming that number is material (and maybe it is not)I wonder how "rosy" things would seem if those loss of jobs were showing up somewhere.
Until the employment numbers start getting pinged, there will not be any smoke to set off any economic alarms.
Also, loan loss reserves for "normal" lenders are still at historic lows. They are increasing, materially so--but in aggregate, they are still low. That will be another smoke whiff--and an outright flame if job losses begin.
The strength of the Japanese market surprises me, too. Their last durable goods order was below expectations, and as Russell notes, the consumer is getting a little puny.
Fundamentals are subjugated by liquidity I guess.
Leisa:
Residential real estate is also loaded with the documented, but self employed workers. I do not believe that they will show up in your standard unemployment statistics.
Russell, excellent point. So I would really want to buy two pieces. I know on Ritholtz's blog there has been much discussion about who is in who is out in those numbers.
It occurs to me that if we go to other blogs as one would go to a bar, would we be called "blog flies"? Blogfly would be a good blog handle I think.
Hard Landing a-Comin'!
One of the things you have to watch out for is that job insecurity, especially white collar jobs, translates to fears about the economy. THe last 15 years has shown this to be false. In other words, if another guy loses his job, it's a recession. If you fear you'll lose your job, it's a hard landing a coming. Realizing this, I quit my high paying job and now am loving it, being self employed, offshore, and completely immune (more or less) from the economic cycle--since my client list has expanded.
Oh yes, looks like no hard landing... for now.
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