Archive for March 15, 2012

3 Stocks to Sell, Mortimer, Sell

In the movie Trading Places, the evil commodity traders who bet on
the futures of Dan Akroyd and Eddie Murphy looked with dismay when their grain
longs were wiped out thanks to some bad inside information.

Could investors use inside information to avoid losing money in the stock
market? We think they can, but from trading based on legal insider information
conveyed by the best measure of bullish or bearishness — insider buying and
selling activity.

The following 3 leading stocks should be watched closely because of heavy
insider selling. Investors in these names may want to invest some profit into
longer dated put options against their stocks as an insurance policy. This
strategy delivers around twenty five percent of the gain of a “naked” long
position while allowing for only a 7% or so maximum loss if this options hedging
strategy is done correctly. We think a married put strategy makes sense, but
would suggest any directional bet on the following 3 names should be bearish,
not bullish.

Salesforce.com (CRM) — We recently
shorted CRM via bear call spreads because the stock is trading for a huge
premium to our estimate of discounted future free cash flows. We sold the $155
April CRM calls and purchased the April $165 calls for a bear call spread trade.
The stock is currently trading for around $151 and change so we have a nice
cushion should CRM keep rising in the short term.

Read More Here: http://seekingalpha.com/article/437441-3-leading-stocks-with-heavy-insider-selling

Bubbles…

Here is a Krugman post on the question, here are earlier posts from Sumner and Yglesias.  I will put my remarks under the fold…This topic is easiest to understand if you sub out the United States and sub in Greece.  There is no AD boost that can (anytime soon, without a lot of extra growth kicking in), restore Greece to its previous output peak and its previously expected performance-to-come.  Circa 2006, Greece was in an unsustainable position, if for no other reason the market didn’t understand the correct risk premium for Greece.  Once the correct risk premium is applied, Greek output falls and furthermore numerous (related) bad events kick in and also a whole set of previous plans are shown to be unsustainable (and no this doesn’t have to be an Austrian argument!).  The gap between Greece’s current path, and the path previously envisioned for Greece is thus:

a. part AD gap which can be fixed by AD policy

b. part a difference in risk premia, and for Greece the old risk premium, when the country borrowed at very low rates, was wrong and is gone more or less forever.  The concomitant financial and fiscal stability is gone too.

c. part a difference in enthusiasm in supply, based on the differences between earlier expectations that “get rich quick” really does apply to Greece, and the current more pessimistic expectation that “get rich quick” is now unlikely, and thus “smaller-scale, scrabble-around projects just to make ends meet” are the order of the day.  DeLong gets at some of this here.

Read more here: http://marginalrevolution.com/marginalrevolution/2012/02/bubbles-and-economic-potential-and-potential-gdp.html

Las Vegas Housing Bottom?

Inventory is down 13% in Las Vegas.

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities. Prices, as of the December report, were off 61.8% from the peak according to Case-Shiller, and off 8.9% over the last year.

Sales in 2011 were at record levels, more than during the bubble, and it looks like 2012 will be an even stronger year – even with some new rules that slow the foreclosure process.

From the LVGAR: GLVAR reports increasing home sales, prices, decreasing inventory. First on a record sales pace:

According to GLVAR, the total number of local homes, condominiums and townhomes sold in February was 3,794. That’s up from 3,591 in January, and up from 3,371 total sales in February 2011.

Compared to one year ago, single-family home sales during February increased by 17.8 percent, while sales of condos and townhomes decreased by 5.0 percent.
And on the decline in inventory:
By the end of February, GLVAR reported 6,543 single-family homes listed without any sort of offer. That’s down 18.2 percent from 8,001 such homes listed in January and down 45.6 percent from one year ago. For condos and townhomes, the 1,598 properties listed without offers in February represented an 8.5 percent decline from 1,746 such properties listed without offers in January and a decrease of 45.6 percent from one year ago.
And on the percent distressed:
Meanwhile, 29.3 percent of all existing local homes sold during February were short sales … Bank-owned homes accounted for 42 percent of all existing home sales in February, down from 45.5 percent in January.
So 71.3% of the sales were distressed, and over half were purchased with cash.

One of the keys is the decline in inventory. Note that the GLVAR reports both total inventory, and inventory excluding “contingent” listings (usually short sales). Total single family inventory was down 15.4% from a year ago, and excluding contingent listings, inventory was down 45.6%!

Read more here:http://www.calculatedriskblog.com/2012/03/las-vegas-house-sales-up-13-yoy-in.html