The Haiku of Finance for 08/16/24

Market calm returns

Not so volatile this week

Lack of big wild swing

The Haiku of Finance for 11/30/20

Volatile return

Hedge move in both directions

Wide premium range

The Limerick of Finance for 10/12/14

The market can have a wild week
It thwarts what investors still seek
A volatile swing
Just a random thing
Day traders are still up a creek

The Haiku of Finance for 09/22/14

Quiet in market
Lull in volatility
Hardly a worry

YRCW Coverage Dropping Like . . . Flies On A Unionized Truck

Publicly traded companies like the attention they get from research analysts who give them formal coverage.  The thing is, you have to be a solidly profitable company with a bright future to warrant coverage.  Sadly, YRC Worldwide no longer meets that description, which is why research coverage of the firm is drying up.  Don't worry, YRCW, I'm still tracking your every move. 

Maybe the Teamster monthly newsletter can initiate coverage of the stock.  The union is already giving it a shot with media puff pieces, but they need to try harder for Wall Street to take them seriously.  The union would first have to find members eager to put down the donut box long enough to pick up a YRCW annual report.  They'd also have to start reading the business section of the daily paper instead of the comics page so they can understand why lame stocks like YRCW can experience a massive one-day run based on nothing at all. 

Here's my theory as to how this trading anomaly may have occurred.  Perhaps some hedge fund algorithm mined the market for low-priced stocks with an extremely high short interest (over 20% of float for YRCW right now).  Then maybe the fund took outsized positions in YRCW options (which surged over 1200%) in the hope of driving a short squeeze that would force up the share price for some quick gains.  Come on, I'm just guessing here.  I don't have time to look for confirmation of large institutional long positions placed into YRCW or its options chains this week, but it's just fun to wonder which hedge fund on Wall Street is dumb enough to play this game.  If Teamsters really want to be taken seriously on Wall Street, they should start their own hedge fund and try to come up with even dumber trading strategies.  It's not hard at all to be dumber than the Street. 

Full disclosure:  No position in YRCW.

Soros And His Gold Changes

George Soros's investment strategy has not changed very much in its treatment of gold as an asset class.  He only changed the vehicle.  He drastically reduced his holdings of GLD and exchanged his stakes in some gold mining companies for other miners.  The logic is inescapable.  The lack of certainty around the actual bullion holdings in GLD is well-documented (at least in the blogosphere).  It makes more sense to own gold where it is most secure - in the ground as ore.  Gold stocks' movements are less correlated with the underlying price of gold, so this move aligns the volatility of Soros' precious metals holdings more closely with that of the rest of his portfolio. 

Full disclosure:  No position in GLD.  Long GDX with covered calls. 

Walk Like An Egyptian ETF - With Caution

The world's eyes were until recently glued to Greece, the cradle of civilization.  Now they're mesmerized by that other font of ancient mystery, Egypt.  U.S. retail investors have little access to the Egyptian stock market except through thinly traded instruments like the Market Vectors Egypt Index ETF (EGPT).  This ETF isn't as liquid as others because many of its underlying equities are illiquid, requiring new shares to be handled via in-kind creations.  Van Eck has suspended those creations now that Egypt's turmoil has closed its equity market.  Investor cash intended for EGPT can't be put to work in the fund, so the Egyptian market remains largely inaccessible to new investors despite increased investor attention.  Even ETF experts are unable to estimate a fair value for EGPT thanks to the implied tracking error of all that sidelined cash. 

Daily trading volume in EGPT has exploded in the past two weeks.  Long investors might be betting that the crisis will soon be resolved and stability will return.  Short investors can bet on further chaos.  Value investors need to consider the long-run implications of Egypt's problems.  Credit default swaps on its debt are extremely high, with yields rising due to uncertain bond market interest in new issues.  There is some risk that Egypt's logistics infrastructure can be compromised by political violence.  The Suez Canal seems safe for now but an explosion has taken a very important natural gas pipeline offline.  It is too early to tell whether that explosion was due to sabotage, but any any infrastructure vulnerability puts additional pressure on the military to implement backup measures. 

The risks of investing in emerging markets are obvious.  Egypt is a boiling cauldron right now, and investors can easily get burned. 

Full disclosure:  No position in EGPT. 

Milk Money

Some puns are long overdue. I'm going to milk this one for all I can:

A collapse in milk prices has wiped away the profits of dairy farmers, driving many out of business while forcing others to slaughter their herds or dump milk on the ground in protest. But nine months after prices began tumbling on the farm, consumers aren't seeing the full benefits of the crash at the checkout counter.
(snip)

Price disparities are a fact of life both for farmers and anyone who shops at a supermarket, but the nature of milk — how it's stored, priced and sold around the world — makes the gap all the more dramatic. In fact, the price that farmers get has been wildly volatile for years, creating a succession of booms and busts felt from pastures to the grocery store.

Commodity prices are always volatile, so that's not much of a surprise. What's different this time is that the excess of supply isn't leading to retail price declines. Perhaps Peak Oil is pushing up the cost of production to the point where dairy farmers require a permanent price floor to be viable. Any price below that floor makes their entire industry unprofitable. Organic milk producers should be in less trouble, but even they will be impacted by rising fuel costs for transportation. Milk is a renewable resource, but the petroleum used in its production isn't.

This one's not a conspiracy. There's no OPEC-like cartel for the milk industry that can force down production to keep prices up. Note how the article gently mentions the ineffectiveness of the USDA's pricing programs; they are unable to achieve their intended goal of keeping small producers in business. The USDA is forced to meddle in what should be a free market because of the political influence of dairy farmer constituencies.

Nota bene: Anthony J. Alfidi holds no investment interest in any dairy producer or distributor. He does drink milk (usually organic) a few times a week and also enjoys other dairy products such as cheese and ice cream.

Alpha-D Bets on Higher Volatility Before Summer

The market has been boringly non-volatile lately. I'm willing to bet that will change when the bank stress test results are released in a few days. Some big shots are going to be scrambling for capital to avoid losing their jobs.

That's why I'm doing something with my Alpha-D portfolio that I haven't done in a few months. I just sold some puts (covered by cash) on the CBOE Volatility Index. These are Jun 09 puts at 30, so I'm assuming that the market will be at least as volatile as it is now (which isn't much) for another month and a half.

Going With VIX Options

Last Tuesday I hinted at adding a pure volatility play to my investment strategy. Now I can go into more detail as to why this is worth doing. Check out this chart of VIX:IND from Bloomberg:

The latest version of my portfolio report at Alfidi Capital shows that I have added VIX options to my toolbox. I recently sold Nov 08 puts on ^VIX at 28 based on my belief that this market will be wild for the forseeable future. The continuing collapse of the hedge fund industry means forced selling will continue for several months.

Nota bene: Anthony J. Alfidi holds short puts on VIX at the time of publication of this commentary.