Standard & Poor’s Credit Ratings

The scale below comes via S&P’s website.  While I could analyze this from every nerdy angle under the sun, I’ll ask you to consider one thing.  Of the grades below, which do you feel best describes a creditor who must borrow money to cover their existing interest payments?  I don’t know which one you’ll feel is appropriate, but I’ll wager a decent sum that it doesn’t have a vowel in it.

 

The general meaning of our credit rating opinions is summarized below.

‘AAA’—Extremely strong capacity to meet financial commitments. Highest Rating.

‘AA’—Very strong capacity to meet financial commitments.

‘A’—Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.

‘BBB’—Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.

‘BBB-‘—Considered lowest investment grade by market participants.

‘BB+’—Considered highest speculative grade by market participants.

‘BB’—Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.

‘B’—More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.

‘CCC’—Currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.

‘CC’—Currently highly vulnerable.

‘C’—Currently highly vulnerable obligations and other defined circumstances.

‘D’—Payment default on financial commitments.

Note: Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.

via S&P | Ratings Credit Ratings Definitions & FAQs | Americas.

One of My Favorite Articles…

 

 

This is a great example of thinking for yourself.  Burry is an extremely smart individual, but his underlying premise for his largest trade was not rocket science.  Anyway, check it out.

 

Betting on the Blind Side | Business | Vanity Fair

Jackson Hole

Lots of chatter last night and this morning regarding Friday’s Helicopter speech not supporting recent moves in stocks.  The common theme seems to be that he’s limited at the moment by inflation pressures.  That may be true near term, but inflating is exactly how they’ll attempt to right the ship over time.  The math associated with our national debt does not allow for a straightforward approach here.

Interesting trading opportunities for Friday morning, especially if we go up today.

TD

 

Steve Jobs Steps Down

Just a quick note on this one.  While Apple is a little too popular for this guy, I would definitely not sell the stock based on Jobs’ departure.  Overreaction on news events like this always remind me of the old Pepsi syringe story (not comparing Jobs to a syringe) in which investors sold Pepsi stock like crazy after syringes began being reported as found in Pepsi bottles (most later found to be false reports).  The similarity is that it simply was not likely that the Pepsi syringe issue was going to be an ongoing problem…just not logical.  Likewise, I don’t view Jobs and Apple in general as not forward thinking enough to be proactive with regard to Jobs eventually stepping down.

TD

 

A Few Interesting ETF’s

I thought I’d throw out a few ETF’s/ETN’s that I think are worth studying and then following for trading opportunities.  I don’t typically look at these as investments.

QID-This one provides 2 times the inverse move in the NASDAQ (QQQ).  So if the NASDAQ decreases by 2.5%, QID would move up by approximately 5%.  Likewise, if the NASDAQ increases by 2.5%, QID would decrease in value by 5%.  It gives you the opportunity to make money if the market falls.

TBT-This one provides 2 times the inverse move in the Barclays Capital 20 year US Treasury Bond Index.  This would serve as a play on rising interest rates.

DAG-This is an ETN that is designed to provide 2 times the move in the Deutsche Bank Liquid Commodity Index-Optimum Yield Agriculture.  This index is equally weighted between corn, wheat, soybean, and sugar futures contracts.  Keep in mind that there are lots of odd moves when it comes to futures and therefore you will not always see a perfect correlation between DAG’s movement and that of the underlying index commodities.

These are not for everyone and this is especially so for risk averse individuals.

This is not an investment recommendation.

As always, think for yourself and do your own homework.

TD

 

2 headlines, 1 story….

Bloomberg headline:

Gold Tumbles as Demand for Haven Wanes

Gold plunged $104 in New York, capping the biggest drop since march 2008, on speculation that financial markets may be stabilizing, eroding the appeal of the precious metal as a safe haven.

CME Group Raises Performance Bonds For Comex Gold Futures By 27% 

(Kitco News) -Margins needed to trade Comex gold futures are being increased by the CME Group and will take effect after the close of business on Thursday, the exchange said Wednesday in a press release.

The move by the CME Group to raise the margin needed – also known as performance bonds – to trade gold futures on the Comex division of the New York Mercantile Exchange likely won’t come as a surprise given the heavy volume and volatile price swings. Futures traders had talked about the possibility over the past few days, particularly after the Shanghai Gold Exchange raised margins on Tuesday. The CME had recently raised margins on gold futures by 22%. The CME Group is the parent company for the Comex and Nymex.

So Bloomberg contends that people are selling gold because the markets are stabilizing, while Kitco News is suggesting that COMEX margin hikes caused the drop.  I’m going to guess that many of you don’t even understand what a COMEX margin hike is, yet still have the common sense to realize that nobody believes the markets are stabilizing.  Heads up on believing everything you read.  Apply the smell test to articles and/or research like this.  You rarely have a clear take on the agendas and biases of the faceless entities generating this media.  There are plenty of articles discussing the recently tame inflation data, but if you buy groceries, have kids in college, use the healthcare system, pay for insurance coverage, etc…you know something’s a little off kilter with the recent inflation data.  As Rex Stout once said: “There are two kinds of statistics, the kind you look up and the kind you make up.”

For what it’s worth, I think you could see further pressure on gold in the near term.  It seems a little overbought and additional COMEX margin hikes will help shake out the weak hands.  Once a little selling starts to hit an investment as hot as gold, the hot (short-term) money will head for the exits en masse.  This can result in significant volatility and is thought to create ownership transition from the short-term traders (weak hands) into longer term investors.

Do not buy or sell gold based upon this post.  As always, think for yourself and do your own homework.

TD

Quick follow up on euro (PIIGS) bailout

Zerohedge with an interesting quote out of Germany yesterday:

“Another very significant development for the gold market took place yesterday when an influential member of Germany’s ruling coalition, Ursula von der Leyen, said that Germany should follow Finland’s lead on Greece and seek collateral for loans from bailout countries and the collateral should preferably be gold.

Ursula von der Leyen is a senior German minister; deputy chairwoman of the Christian Democrats (CDU) and is a potential rival to Angela Merkel. It is unlikely that she would have made a solo run on this if she had not had a prior discussion with Merkel or at the very least with her government colleagues and lawmakers.”

Again, this is further confirmation of the direction these bailouts are taking.  I pointed this out a few days ago when the Greek bailout took a similar twist as reported by the New York Times.  In this instance, you have gold being mentioned as the collateral of choice.  I’m not suggesting conclusions be drawn, but to ignore the potential ramifications for the US seems a little short-sighted.

TD

Trading Thoughts.

I think there’s still some upside in the coal stocks I mentioned a few days ago.  However, with ANR and PCX up 9% and 10% (respectively) yesterday, I’d be a little hesitant buying prior to Friday.  These are obviously volatile stocks and not for the faint of heart.

On the topic of this coming Friday (8-26-11), I wonder if the much-anticipated Jackson Hole speech by Helicopter Ben ends up being a sell the news event.  He used this speech last year to lay the groundwork for QE2, which resulted in a ramp in stock prices over the months that followed.  Maybe the same will happen after Friday’s speech, but the QE series (umm, I think we’re on 3, yeah…QE3) seems to have a tired feel to it.  Depending upon the volume and range of stupidity coming out of this speech, I’d almost be inclined to sell into any spike in the market that results.

Adding credence to the sell the news thought, would be further significant gains Wednesday and Thursday as “sell the news” is typically preceded by “buy the rumor”.  The rumor in this case being that QE3 is coming to save us on Friday.

The fed’s whole negative real rates strategy is really adding risk to all investments.  Given the backdrop of a bunch of printing press loving central bankers, I think commodities deserve a place in most portfolios as an inflation hedge.  The problem is that the commodity party is getting a little crowded as well….little too popular.  There’s definitely very little comfort in the old buy and hold mantra.  I don’t see this mindless strategy paying off over the next 5-10 years.

TD

*These are simply random thoughts and not investment recommendations.  As always, think for yourself and do your homework prior to making any moves with your own portfolio.

 

 

Great TED talk to start your day…5 minutes…do it

Ric Elias: 3 things I learned while my plane crashed

Further Middle East Complications

STRATFOR (Strategic Forecasting, Inc.) is out with a story this week suggesting that an Israeli-Arab Crisis is in the works.  While my first thought is:  “what’s new?”,  I found the article very interesting and worth a look.  As always, I think reads like these are worth your time in terms of both current portfolio considerations as well as potential opportunities.  For those of you not familiar with STRATFOR, they are considered a very well-connected global intelligence firm, providing cutting edge info to large multinational companies and several governments.  The link to the article is below:

  Israeli-Arab Crisis Approaching