Tuesday, July 27, 2010

What is the CDS Market telling us?

For a while the major Oil Companies and Drillers were drifting out of the news. The nasty leak from the BP well was not getting constant attention any more as a mostly successful cap was put in place. Four of the largest Oil Companies are beginning a program for rapid response to a spill, all of which is very good. The problem is part of the market is not buying this, yet.  You can measure this by examining the Credit Default Swaps (CDS) 5 Year Par Spreads. The CDS spread is an indication of how much it costs to insure a fixed amount of a company's debt from default. Higher spreads mean that the market is pricing a greater chance of default, thus more implied risk.

Using Aqumin's AlphaVision Landscape, the risk premiums for the Gulf Disaster related companies using 5 year CDS Par Spreads have shown pretty hefty growth over the last 3 months. This is what you would expect from the uncertainty that had grown over the spill situation. BP, APC and RIG have dominated the headlines and their increasing 5 year CDS par spreads show it. Look at the Tall, Red buildings in the landscape on the left. The other names that pop up are DO and NE and would bear further research to see if there is an opportunity there.

7-27-2010 9-06-46 AM Using a feature in AlphaVision, you can see the same landscape footprint of GICS Sectors by 3 Day Change in 5 Year CDS Par Spreads side-by-side with the 3 month change. RIG is the only name of the 5 previously mentioned that has not responded well to BP's successful cap. In fact, RIG's CDS premiums are still going up. Note the landscape on the right in the MultiView, where RIG was pretty much alone with expanding 5 Year CDS Par Spreads over the last 3 Days while BP, APC, DO and NE had declining spreads over the same time (those are the Tall Green buildings under the landscape on the right). Recent news about a disconnected fire alarm and the attendant liability for RIG is making itself more apparent in the CDS market. This RIG is too hot to handle. Maybe it is time to start examining the other names on the list as the CDS spreads cool for them.

Andrew Giovinazzi

The opinions expressed by the author are his alone, and do not reflect the opinions of Aqumin LLC, its shareholders, partners or affiliates.

Wednesday, July 21, 2010

The Pipelines are Pumping...

I won't even try to predict the price of Oil or other Carbon Products. What I would rather do is follow the gobs of money that know better. The Equity Market has been taking its daily drubbing and I wanted to see what was running counter to the market trend.

Pipelines MMP 7-20-10

I watch the top 3000 stocks with listed options in the Bloomberg Terminal. I am using a View from the Aqumin View Library called "5 Day Daily Value vs 3 Month Daily Value." You simply click the button and this View appears for your selected universe of stocks while it gets the appropriate data from your Bloomberg Terminal. Very Easy. Look for tall green buildings which signify Consecutive Days Up, and the 5 Day Average Daily Value of the name traded are greater than the 3 Month Average Daily Value. Two Industry Groups stood out on the Landscape, indicating lots of positive action over the last few days, Pipelines and Debt Funds. I chose Pipelines because Magellan Midstream Partners LP (MMP) stood out the most overall (tall, deep green color), and was trading 3.5x its 3 Month Average Value over the last 5 days. The tall red ones are up on very light volume (below 3 month average actually). From experience I discount those because not a lot is trading and they move in a whisp.

In general over the last month MMP has shrugged off the market's malaise. Someone thinks they know where MMP is going in the months ahead.

The opinions expressed by the author are his alone, and do not reflect the opinions of Aqumin LLC, its shareholders, partners or affiliates.

Tuesday, July 13, 2010

What a Wells Letter Looks Like

Some companies have the unfortunate problem of getting a Wells Letter from the SEC. Plaintiff lawyers circle and sue the company on behalf of shareholders. A Wells Letter is kind of like the SEC getting in your kitchen and turning over all the pots and pans.  This is nasty business for the publicly traded company. Using AlphaVision™ for Bloomberg the Wells Letter impact looks like this.

7-13-2010 1-33-11 PM The stock flagged in the View above, Amedisys Corp, (AMED) received a Wells Letter a couple of weeks ago. In this landscape, taller buildings are down the most consecutive days in a row. AMED stands out among the top 3000 or so names I follow in AlphaVision™, being down the most over 8 consecutive days. The green color indicates higher 5 day average of daily value traded (1.29x the 3 month average). Money is leaving AMED in buckets in a market with relatively light volume. Something to think about before you do some Bottom Fishing.

The opinions expressed by the author are his alone, and do not reflect the opinions of Aqumin LLC, its shareholders, partners or affiliates.

Thursday, July 1, 2010

Is there really a Silver Lining?

There is so much talk about inflation and printing money that it seems a foregone conclusion. Gold is near its all time highs. The conventional wisdom on this is pretty set in stone. Commodity prices will skyrocket again with inflation, yet US Treasury securities keep moving up. Eventually the Treasury Securities or Gold will reign supreme (kind of like on the Iron Chef). Once in awhile there is a contrarian bet on this that stands out. Take a look at the ZSL on this AlphaVision ETF Landscape. The ZSL (Proshares Ultrashort Silver) is an ETF that looks to mimic a negative 200% bet on the price of silver. Silver goes up, and the ZSL goes down twice as fast on a given day. Silver goes down, and the ZSL goes up twice as fast on a given day. The returns on the ZSL have been pretty bad over the last year, down some 60% as the precious metals have popped.

ZSL 6-30-10R1The ZSL stood out because there were not very many stocks (or ETF's) that were up at all over the last two days (the exceptions being all of the Long Treasury ETF's in the foreground) with larger 5 Day Average Value traded versus the 3 month moving average.

What the picture above shows was that the 5 Day Average of Value Traded was 1.5 times greater than the 3 Month Average. Money was moving into the ZSL yesterday and over the last two days in much bigger size than normal. Someone here looks to be making an unconventional bet on metals prices that works more with the continued rise in Treasuries. Food for thought....

The opinions expressed by the author are his alone, and do not reflect the opinions of Aqumin LLC, its shareholders, partners or affiliates.