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Second Wave?
Feb. 17th, 2009 11:31 amAs readers will know, I've long been of the opinion that the rally since October has been a bit of a dead-cat bounce, and that I anticipated another fall, perhaps to around 3,500 on the FTSE, as full-year figures started to be released. The general timescale was that this would reach its nadir sometime towards the end of March.
I'm beginning to suspect that we might be seeing signs of this at the moment. On the figures side, Aegon and Eureko (two companies in my sector -- I'm sure there are others in other sectors) have released figures that really are a pile of shit. Eureko managed to lose €2.9bn of its €10.4bn capital in a single year, which I reckon requires a great deal of focus, rather than just "taking your eye off the road". Aegon (also Dutch), came out with numbers which Keefe Bruyette Woods called "even worse than we feared" and the fear was pretty bad.
In the "real" economy, the car manufacturers are basically begging for money to be made available to their pseudo-bank finance arms so that they can lend it to people to buy cars so that the stocks can be reduced so that people can be employed to build more cars to fill up the pens that are currently full -- if you see what I mean. Those finance arms were not so keen to fall under the aegis of banking regulation when times were good, and BoE boss Mervyn King understandably isn't too keen to bail out operations that he feels were in a way responsible for the current mess -- being non-banks who increased the money supply.
Meanwhile, back in equity land, we have the paradox of companies seeing their share price rise when they announce deeply discounted rights issues -- the theory followed by investors being that this money will mean that the company will not go broke. It's an indication of how deeply discounted some parts of the market are (e.g, Royal Bank of Scotland) that any indication that the shares will not become worthless is a plus. RBS, you might like to know, is currently trading at 20% of book value. This implies, although the correlation is not absolutely perfect, that the market thinks there is an 80% chance that RBS will be fully nationalized.
Over in dividend land (that haven beloved by long-term investors such as pension funds) companies are desperately trying to keep dividends going, giving up only when the alternative is much worse. Companies can put as much spin as they like on not paying a dividend; if you were once bougght on the basis of your yield rather than on potential capital growth, and you now offer no yield and no capital growth prospects, then you aren't going to be much loved.
One might think that, from the above, any thoughts of putting money into equities should be accompanied by going for a long lie-down until you feel better. But the counter-argument (or, indeed, the great contrarian line) is that the argument once put out in favour of buying banks shares ("even if their dividend is halved", etc) -- an artgument that turned out to be woefully incorrect, may now be exactly the right argument to post in favour of investing in the broader economy. Yes, some will come out with rights issues. Yes, some may go broke. Yes, some may suspend their dividend. And yes, the FTSE will probably fall further as part of general negative sentiment. But when you can find yields of 8% to 10% without much trouble, and when a broad portfolio offers one of the better long-term defences against inflation, you can afford a few failures and still end up with 6% a year yield, or thereabouts.
And, to take three at random, what about National Express (13.2%), Headlam (10.5%) and William Hill (9.3%)? Now, it's easy to come out with reasons to oppose these stocks (they wouldn't be offering such yields if there weren't!) but my point is that you could find a dozen other companies offering similar yields, and not ALL of them will go tits up. It's not as if I am talking about something like JJB (66% yield, if you are interested) or other headline basket cases.
++++++++++
Had two sessions on Party yesterday for a loss of $330, with little emotional impact. I may post three hand histories later (all losers). Of course, it's easier to suffer such losses with equanimity when you are 30 buy-ins up for the year (25,000 hands at that level) and you know that your win-rate has been unsustainable. And you will always lose your stack with QQ on the button against AA in the big blind on a flop of AQx followed by an ace on the turn. The second hand was more debatable and I spent some time thinking that I had got it wrong and should have folded my AA on the flop. I then thought about it again and decided that I was probably right to call.
After that it was standard stuff, although I noticed (although this might be coincidence) a few examples of heavy overbets on the flop by half-stacks.
Sequence goes:
Late position raises. Blind reraises to 20% of the shorter stack. Late position calls. Flop comes xxx (nothing desperately dangerous) and Blind immediately goes all-in, equal to twice the size of the pot. An interesting strategy that is presumably exploitable if they are doing it with too wide a range. One of those plays that works ... for a short while.
____________________
I'm beginning to suspect that we might be seeing signs of this at the moment. On the figures side, Aegon and Eureko (two companies in my sector -- I'm sure there are others in other sectors) have released figures that really are a pile of shit. Eureko managed to lose €2.9bn of its €10.4bn capital in a single year, which I reckon requires a great deal of focus, rather than just "taking your eye off the road". Aegon (also Dutch), came out with numbers which Keefe Bruyette Woods called "even worse than we feared" and the fear was pretty bad.
In the "real" economy, the car manufacturers are basically begging for money to be made available to their pseudo-bank finance arms so that they can lend it to people to buy cars so that the stocks can be reduced so that people can be employed to build more cars to fill up the pens that are currently full -- if you see what I mean. Those finance arms were not so keen to fall under the aegis of banking regulation when times were good, and BoE boss Mervyn King understandably isn't too keen to bail out operations that he feels were in a way responsible for the current mess -- being non-banks who increased the money supply.
Meanwhile, back in equity land, we have the paradox of companies seeing their share price rise when they announce deeply discounted rights issues -- the theory followed by investors being that this money will mean that the company will not go broke. It's an indication of how deeply discounted some parts of the market are (e.g, Royal Bank of Scotland) that any indication that the shares will not become worthless is a plus. RBS, you might like to know, is currently trading at 20% of book value. This implies, although the correlation is not absolutely perfect, that the market thinks there is an 80% chance that RBS will be fully nationalized.
Over in dividend land (that haven beloved by long-term investors such as pension funds) companies are desperately trying to keep dividends going, giving up only when the alternative is much worse. Companies can put as much spin as they like on not paying a dividend; if you were once bougght on the basis of your yield rather than on potential capital growth, and you now offer no yield and no capital growth prospects, then you aren't going to be much loved.
One might think that, from the above, any thoughts of putting money into equities should be accompanied by going for a long lie-down until you feel better. But the counter-argument (or, indeed, the great contrarian line) is that the argument once put out in favour of buying banks shares ("even if their dividend is halved", etc) -- an artgument that turned out to be woefully incorrect, may now be exactly the right argument to post in favour of investing in the broader economy. Yes, some will come out with rights issues. Yes, some may go broke. Yes, some may suspend their dividend. And yes, the FTSE will probably fall further as part of general negative sentiment. But when you can find yields of 8% to 10% without much trouble, and when a broad portfolio offers one of the better long-term defences against inflation, you can afford a few failures and still end up with 6% a year yield, or thereabouts.
And, to take three at random, what about National Express (13.2%), Headlam (10.5%) and William Hill (9.3%)? Now, it's easy to come out with reasons to oppose these stocks (they wouldn't be offering such yields if there weren't!) but my point is that you could find a dozen other companies offering similar yields, and not ALL of them will go tits up. It's not as if I am talking about something like JJB (66% yield, if you are interested) or other headline basket cases.
++++++++++
Had two sessions on Party yesterday for a loss of $330, with little emotional impact. I may post three hand histories later (all losers). Of course, it's easier to suffer such losses with equanimity when you are 30 buy-ins up for the year (25,000 hands at that level) and you know that your win-rate has been unsustainable. And you will always lose your stack with QQ on the button against AA in the big blind on a flop of AQx followed by an ace on the turn. The second hand was more debatable and I spent some time thinking that I had got it wrong and should have folded my AA on the flop. I then thought about it again and decided that I was probably right to call.
After that it was standard stuff, although I noticed (although this might be coincidence) a few examples of heavy overbets on the flop by half-stacks.
Sequence goes:
Late position raises. Blind reraises to 20% of the shorter stack. Late position calls. Flop comes xxx (nothing desperately dangerous) and Blind immediately goes all-in, equal to twice the size of the pot. An interesting strategy that is presumably exploitable if they are doing it with too wide a range. One of those plays that works ... for a short while.
____________________
