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#51
07-31-2007, 07:21 AM
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Re: Trade ideas...lets see what we can come up with
I focus on only a few select commodities in my trading.......orange juice, sugar, corn, soybeans, heating oil being the frontrunners.
It appears to this observer that this years corn crop is not going to produce the bushels that many are expecting due to the increased planted acres. Test weight is a big factor in yield, and if corn runs out of moisture before blacklayer, test weights and grain quality goes down. Test weights can hurt final yield quite a bit. Last year we got good rains starting at the end of July and through the month of August. Test weight and rain quality on corn was quite good, and corn yields surprised everyone to up side of expectations. This year corn is running low on moisture, temperatures are higher, and rain appears not to be coming. Again, I think most yields will be lower than the SWAG's people take counting kernals. 
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#52
07-31-2007, 10:41 AM
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Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
[ QUOTE ] they are both right now trading at a cost that implies a Ba1 rating [/ QUOTE ] How do you get this? This seems to imply there is some historical fixed cost to which you can relate current prices. What if the cost that ML would default has been suppressed. [/ QUOTE ] from credit default cost #s. they are hedges for bond holders basically. very liquid and efficient securities that are traded worldwide. a CDS is the cost to insure $10mil in loans from a company. typically, for highly rated company, they trade in the bps range (as in less thatn $100k or less than 1% of the notional). recently, they've shot up to records past the $100k range which, when you back out the spread (bloomberg), it is trading where junk would trade in terms of that spread. [ QUOTE ] We have seen a massive rising tide, how could the tide have risen without some suppression of the cost of taking on credit risk. You say your self the tide will go out, the above post seems to describe the process by which that might be facilitated. If in effect the credit rating of ML is being marked down so harshly, I would imagine that would freeze liquidity to stone. [/ QUOTE ] one type of liquidity reduction we see now is for these types of corporations. the fear seems to be coming from the fact that: a) private equity loans are forced to be kept on the books b) overall uneasiness due to subprime markdowns and c) reduction of likely profits in the near future due to lower consumer spending (though it is projected to rise from current levels in the near future). this brings in earnings and takeovers become less atttractive and thus fewer deals are likely to be done (which makes sense as the deals are least likely to be done in the last part of the business cycle which is what we're heading for) so i think there is rational behind the withdrawl from merrill & goldman, but i don't think the liquidity has hit the "to stone" market overall yet. foreign countries are still growing and rates are still low (though spreads have widened). the overall tide coming back out shouldn't be immediate. global real yields need to rise and turn us (as a global economy ... though at different points) into the final stage of the business/economic cycle. that will be the reduction of liquidity, reversing years of lowered yields. the rising tide you mentioned definitely pushed overall corporate spreads near or to historical lows (thus reducing credit cost for companies). in some instances though, that spread wasn't far from where it "should" be based on the type of corporation backing the debt (like goldman and merrill). for that spread to now have jumped as high as it did and be right, they'd have to be due for a ratings downgrade (extremely unlikely imo, even one notch is unlikely)...TO JUNK!!! (basically impossible). therefore, the market has overshot this one imo and i'm bullish on these two spreads (and the cost of insuring against their debt). Barron EDIT: another method of comparison. CDX is an index of investment grade (125 equally weighted) companies. the insurnace cost suggested spreads of 87bp for the index. ML and GS were both trading well above that. so you'd have to think that GS & ML were significantly worse credits than 125 investment grade north american companies. i just dno't think that is correct at this point.
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#53
07-31-2007, 12:42 PM
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Re: Trade ideas...lets see what we can come up with
If you are right then this is mostly a sentiment price movement. Might be worth checking out when there are a large number of Mortgage resets due. If sub prime defaulting can have this much knock on, if there is a large increase in defaults after resets then this will hit sentiment just as hard if not harder.
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#54
07-31-2007, 01:48 PM
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Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
If you are right then this is mostly a sentiment price movement. Might be worth checking out when there are a large number of Mortgage resets due. If sub prime defaulting can have this much knock on, if there is a large increase in defaults after resets then this will hit sentiment just as hard if not harder. [/ QUOTE ] thats a very good point. between now and then you may make money with this position, however if you are unsure of the mortgage results, then it makes sense to reduce your position until after they are released. you would sacrifice possible gains, but also protect against massive losses. i'd still leave the position on, but just smaller. if it consensus releases and other data you look at make you feel that the report would go one way or the other you can judge accordingly to manage yoru position. if it did move against you and there was a huge blow out in spreads (beyond what has happened already) i'd think that would be an excellent buying opoprtunity as even if the entire subprime mortgage market cracked to sh*t, goldman would still not be likely to default imo (even considering the knock on effect on growth, demand for goldman's services, and other direct or indirect causes of worsening business environment) that said, i don't think goldman and merrill have massive exposures to subprime mortgages anywhere near what bear had. and even bear isn't going to default on anything. thanks for bringing that up though as sentiment clearly can have massive impact on positions. Barron
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#55
07-31-2007, 03:56 PM
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Re: Trade ideas...lets see what we can come up with
I thought this was pertinent:
[ QUOTE ] July 31 (Bloomberg) -- On Wall Street, Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Goldman Sachs Group Inc., are as good as junk. Bonds of U.S. investment banks lost about $1.5 billion of their face value this month as the risk of owning the securities increased the most since at least October 2004, according to Merrill indexes. Prices of credit-default swaps based on the debt imply that their credit ratings are below investment grade, data compiled by Moody's Investors Service show. The highest level of defaults in 10 years on subprime mortgages and a $33 billion pileup of unsold bonds and loans for funding acquisitions are driving investors away from debt of the New York-based securities firms. Concerns about credit quality may get worse because banks promised to provide $300 billion in debt for leveraged buyouts announced this year. ``The market is being driven by fear,'' said Mark Kiesel, who oversees $80 billion of corporate debt at Newport Beach, California-based Pacific Investment Management Co., manager of the world's biggest bond fund. [/ QUOTE ] Feel the fear.
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#56
07-31-2007, 05:02 PM
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Re: Trade ideas...lets see what we can come up with
It is not just subprime that is having problems. ALT-A is running into trouble and soon prime will be reporting problems. But don't worry boys. Helicopter Ben Bernanke is greasing up the wheels on the printing press. He is going to push M3 growth up to 20%+. This is going to super bullish for gold related assets. GORO.OB is my #1 play in the gold sector.
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#57
07-31-2007, 05:17 PM
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Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
It is not just subprime that is having problems. ALT-A is running into trouble and soon prime will be reporting problems. But don't worry boys. Helicopter Ben Bernanke is greasing up the wheels on the printing press. He is going to push M3 growth up to 20%+. This is going to super bullish for gold related assets. GORO.OB is my #1 play in the gold sector. [/ QUOTE ] alt -A et. al. may run into problems. but it would have to decrease growth significantly AND reduce inflationary pressues by creating slack in capacity utilization. i don't thinkt hat is likely and would bet against a rate cut within the next 6-18 months barring some huge changes (which may happen...we'll see how default rates influence next quarters' and the following ones' consumer spending) Barron
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#58
07-31-2007, 06:46 PM
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Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
I focus on only a few select commodities in my trading.......orange juice, sugar, corn, soybeans, heating oil being the frontrunners. It appears to this observer that this years corn crop is not going to produce the bushels that many are expecting due to the increased planted acres. Test weight is a big factor in yield, and if corn runs out of moisture before blacklayer, test weights and grain quality goes down. Test weights can hurt final yield quite a bit. Last year we got good rains starting at the end of July and through the month of August. Test weight and rain quality on corn was quite good, and corn yields surprised everyone to up side of expectations. This year corn is running low on moisture, temperatures are higher, and rain appears not to be coming. Again, I think most yields will be lower than the SWAG's people take counting kernals. [/ QUOTE ] to what degree is this priced into (or not priced into) corn futures? Barron
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#59
07-31-2007, 08:22 PM
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Re: Trade ideas...lets see what we can come up with
[ QUOTE ]
[ QUOTE ] I focus on only a few select commodities in my trading.......orange juice, sugar, corn, soybeans, heating oil being the frontrunners. It appears to this observer that this years corn crop is not going to produce the bushels that many are expecting due to the increased planted acres. Test weight is a big factor in yield, and if corn runs out of moisture before blacklayer, test weights and grain quality goes down. Test weights can hurt final yield quite a bit. Last year we got good rains starting at the end of July and through the month of August. Test weight and rain quality on corn was quite good, and corn yields surprised everyone to up side of expectations. This year corn is running low on moisture, temperatures are higher, and rain appears not to be coming. Again, I think most yields will be lower than the SWAG's people take counting kernals. [/ QUOTE ] to what degree is this priced into (or not priced into) corn futures? Barron [/ QUOTE ] Good question and one I could only make a guess on. I would think not as much as many other factors, but it should. That's why I like trading corn futures, as I follow this market naturally, meaning I'm following it for different reasons other than investing in futures.
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#60
07-31-2007, 08:49 PM
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Re: Trade ideas...lets see what we can come up with
Barron-
Here is an example of the types of emails I recieve from my friends on a daily basis........and get 5-10 like this daily. It's a great resource, but still one as to guess our the floor traders are thinking and sometimes you think you can make easy money only to have a big fat L(loss) hit your recordkeeping. Here is the email.......... 15 day forcast for central and southern Illinois - 97-97-98-99-93-90-92-97-94-94-90-89-89-94! Chances of Precipition during period - Zip. I know some are saying the corn is made, I don't think so...at least not some of the top end yields that some are predicting.The bean crop is really going to take it on the chin, at least around here...we're at critical flowering - pod set.....Double crop soybeans here will be virtually crap if this forcast holds up...My question...will the stress on beans get us started on another march toward 9+....or is the illusion of the monster corn crop going to hold the market in check until combines start rolling and actual yields start flowing in...I know there's a big corn crop out there, although HOW big is still up in the air as far as I see it...but this is some serious heat setting in...and we seem to get the wind with it...our pastures are toast...most are feeding some supplemental hay already and we don't have all that much of it to spare for summer feeding...
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