Joshua Byrini's Market View
Byrini's obeservations should not be considered recommendations, advice or suggestions to buy, sell or hold securities, commodities, commodity contracts, options, futures, warrants, insurance contracts, real estate, gemstones, art work or derivatives, as he is neither a registered securities, commodities or real estate broker, diamond merchant, art dealer, or investment advisor. These observations are for informational purposes only. In other words, you are on your own chief.Monday, October 10, 2005
Deregulation of the energy markets, gulf security, energy prices, and interest rates made utilities a great place to pull out some run up; but now the sector has become bloated, as valuations soared 15% this past year. Now, it's a complex and difficult area to place good bets. The situation is summed up well today by interviewers for the WSJ, Ian McDonald and ES Browning:
"The sector's fall after last Monday's peak was triggered by worries about all three of the legs that have supported utilities for the past two years -- low bond yields, high prices in the unregulated part of the power market, and high demand for power in a booming economy.
Moreover, the run-up has caused utility stocks to become pricier in relation to their earnings. The higher stock prices also have pushed down their dividend yields -- the amount of income they produce per dollar invested.
"If something bad happens in the utilities world, you could have a material downside," says John Meara, president of St. Louis money-management firm Argent Capital Management, who has steered clear of the sector. "The risk side of the equation is definitely higher than it was five years ago."
How's your Nat. Gas? What about taking the other side of the bet? If gas comes down, who benefits. YELL! Top trucking outfit should be ready to rumble if fuel drops, and the railroad's jig is up. No yield, so hey, why not the 08 45 calls? They are only 800 per contract, which ties up a lot less than the 40 per share, and gets you a little "safety" on your PGH, the tankers, and the other gifts you may have gotten from those sand rats and their backers in the middle east.
Wood Eye?
There is excess of 3 billion dollars of fallen wood in the states of LA and Mississippi, the result of Katrian. Jim Carlon, writing for the WSJ explains:
"From Texas to Alabama, the storms toppled forests as far as 50 miles inland. As much as 21 billion board feet is down, which by state and federal figures is enough to build one million homes. State officials estimate the market value of the downed timber at about $900 million in Louisiana and $2.4 billion in Mississippi."
As the article points out, GP and WY are the two giants in the sector who are both in a position to process all that dead wood, and who are infact doing so, according to that same article.
Both stocks are down, but last I looked, the Georgia Pacific January 06's at 35 are up a dime (http://finance.yahoo.com/q?s=GPAG.X). The WY's Jan 06s at 70 are up too. http://finance.yahoo.com/q/op?s=WY&m=2006-01
Well, whaddaya know? Going long might be a good bet, but going long and short may be better in a situation where there is a lot of uncertainty (will industry organize itself in time to process the wood before it rots on the ground? Will industry do so in a smooth way, where there will be no bumps, stumps or outsized pullbacks?) Buying a call above the current price, and a put below the current price just might pay in spades.
Keep us posted if you do.
Who will insure the insurers Plato?
Katrina is causing trouble all around, but what better excuse to raise insurance rates for the insurers who insure the insurers, or the Re Insurers? Insurance rates, like real estate rental rates rise as rates rise. So, maybe the story has legs.
S & P likes Aspen, AHL, giving it the full cluster of stars, and wihtout looking too close, it might be a good time to glom some calls, given its price chart. Let us know what you find out if you do.
Moreover, AHL yields a little something 2.90%, while you wait; so it's like a CD's yield with a bet on rising insurance prices. A competitor's insider just laid a lot of his own money on his own stock (ENH), meaning he may know something S and P does not about his company's ablity to "weather" the store, if you will. If you won't, nobody would blame you.
EFR
Senior note, foating paper, closed end funds from the Eaton Vance brand, containing high ranked paper in mostly BB and B credit names. The news here, is an insider buy. Last week, a VP at Eaton plunked 50k on each of these floating rate trusts. They yield 7+ %, in a monthly div., adjusting as rates climb.
After a quick look at the individual paper in these things look... possible. The turnover of notes for the year of each was 100%.
EFT trades at a 4% discount ( -4%) to it's net asset value with names like Quintiles Transnational, MGM Studios, Stone Smurf (shipping), Gen Growth Properties.
EFR trades at -6%, with names like Charter Comm, Michaels Foods, MGM Studios, Six Flags, General Growth Prop., Regal Cinemas.
They employ leverage by issuing a pref. class of stock based on short rates, which does not appear to have an outsized risk associated where rates rise.
The Bollinger bands are split about even at these levels on both these babies, but hey, fair is fair. It beats sweating it out for some Brazilian field goal kicker to split the uprights on Sunday.
Like to see more of these closed end, senior note floating fund-trust adjustable yield machines?
The largest trades at an -8% discount under the Van Kempen brand: VVR. Then there's PPR, which which also trades at -8% to its NAV, under the ING brand, and then PHD, trading at an 8% discount under the Pioneer brand. They yield between 6.9 and 8 percent, and seem to hold the same names in different amounts..
But if you really need the action...
Ya know that Wallgreen's they are building...? Exactly.
Josh likes the dollar store in disguise that's blanketing the nation-- WAG, the poor man's Saks; and there are more and more of them (poor men and WAG stores). No yield, but hey, calls could take you there for a lot less, right?
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