A short blog here.
-------------------
i've been doing some more reading and sentiment sampling on HIG over at yahoo boards. man, those folks really hate shorters! but that doesn't bother me and, btw, i am still holding HIG puts... from my examination over several hours (i don't usually hang out on yahoo), it seems that, besides the conspiracy theories i mentioned in the previous blog, folks in particular just don't understand why HIG tanked so hard this past week.
-------------------
so let me explain- my version anyway. for HIG, it's all about retail. their overweight investment in commercial mortgage backed securities, whether directly as cmbs or as cds (credit default swaps), makes them HIGhly sensitive to retail sector weakness because so much of their paper is tied to whether or not retailers will or will not default. (hope you liked my little play on words- "HIGhly").
-----------------------------
so, very simply, what happened was, when the December retail sales numbers came out, the big institutional traders saw catastrophe on the horizon and began shedding HIG shares at warp speed... since then, of course, cooler heads have prevailed, but only for the time being and probably only under considerable duress from those who fear a HIG meltdown could take down the whole market. i'm speculating about the "duress" thing, but it seems likely to me that the so-called "plunge protection team" (PPT) must have collared a couple big institutional players and promised to backstop them if they played along. and so they did. for now.
-----------------------------
up next, this thursday 1/22/09, is the housing starts report for December. actually, that's not expected to be too bad. but if worse than expected, HIG will take another hit because this implies that people still aren't buying new houses, and they aren't buying new houses because they haven't got any money, and if they still haven't got any money they'll spend even less in the retail sector this month than last, and, well... connect the dots.
-----------------------------
adding fat to this fire is the Circuit City (CC) debacle, with them announcing friday just five minutes after the closing bell that they're totally closing up shop and will be liquidating about $1.8 billion in inventory over the next few months.
http://biz.yahoo.com/ap/090116/circuit_city_bankruptcy.html
adding yet more fat to this fire was this week's BK announcements from Goody's and Gottschalk's. in each of these cases, there are two very serious consequences for CMBS and CDS holders.
------------------------------
first, it means these chains will by definition default on their leases, and in turn the property owners will increasingly default on their mortgage notes, triggering massive demands against the CDS holders, and greatly reducing (or largely even eliminating) cash flow for CMBS holders. second- and to look at Best Buy's (BBY) 8.11% gain friday you might doubt this-- it will mean heavy liquidity pressure on competing stores. why? because as places like CC, Goody's, and Gottschalk's begin unloading existing inventory at fire-sale prices, their former competitors will have to cut prices too or suffer a long sales drought. so competitors' earnings will go down. BBY's friday gain was just an emotional reaction to CC going under. the market will soon wake up. and, as competitors' liquidity dries up, they will begin to be late on their lease payments, and some will out and out default, and that kind of stuff hits HIG hard again.
------------------------------
so i'm hanging onto my HIG puts, and when they expire, i'll get more. actually, though, this coming week kinda scares me because i think the market makers have set up a massive fakeout on HIG, running it up to kill the shorts and puts before dropping it like a rock the following week.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment