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« Weighing the Week Ahead: The European Crisis Resumes | Main | Weighing the Week Ahead: Will the Volatility Continue? »

November 07, 2011

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Cassandra

Dear Proteus

I wish they all worked out like that one....;)

Proteus

Jeff, this thread just keeps on going and going. Good idea for the original post.

OK, my final suggestion. I promise :)

Olympus. Talk about a hated, contrarian play. I have had mixed success buying stocks with corporate accounting issues. But the Cassandra Does Tokyo post on Tuesday (I find the anonymous author particularly astute) comes up with a valuation of $5B to $6.5B, against a current valuation of about $1.6B, assuming I didn't mess up the conversions. 70% discount. Might be worth a shot.

Angel Martin

Jeff, I also question how "contrarian" it is to believe that europe might not be a total wreck.

Yes, almost all of the bloggers, pundits and talking heads talk a negative game on europe. But if "the end of europe" was widely believed, why is the euro still at 1.35-1.36 ?

When Ireland got into trouble in Dec 2010, the euro was 1.32-1.34. I think if you told people in late 2010 that by nov 2011, Greece would have been bailed out twice with a 50% haircut for bondholders, Portugal and Ireland would be bailed out and Italy would be in a political crisis with 2 year yields at 6.4%; investors back in late 2010 would be surprised that the euro would be at 1.35+

I don't think the current level of the euro is consistent with a consensus view that "europe is doomed"...

mac26d

I'd like to nominate Toyota(TM) and BP.

Both stocks with lots of negative sentiment.

BP possibly on weakness to the trendline (or b/o above) and TM is coming down to long term support.

Mike C

Cullen Roche over at pragcap.com has written extensively on these issues. Most everyone operating under the notion of much higher U.S. Treasury rates anytime soon and that Greece/Italy are equal to the U.S. is operating under a whole host of false assumptions about how the monetary and banking system operates, and what drives long-term interest rates in the U.S. which is a sovereign issuer of its own currency that is debts are denonimated in (not the case for Greece and Italy).

In short, as long as the Fed keeps ST rates at zero, there isn't much likelihood of higher LT rates anytime soon. So far the Fed has remained committed to ZIRP even with higher CPI numbers.

Angel Martin

Michael M, I don't agree with you that short TLT is contrarian. It seems that almost everyone since mid 2009 has been calling for higher treasury rates, and they keep going in the opposite direction.

that said, i agree with you that if the US political system does not get its act together, then what is happening in europe now is a preview of coming attractions...

Michael M

Well I have to add that 'short' Long Term US Treasuries surely have to be a candidate for massive contempt. Whenever I look at my (held for many months) TBT holding I would say that "hate" is getting close! However, I still have them for some reason. Ummmmm...look what happened to Italy today with rates going over critical mass of 7%...Supposedly that could happen to the good old USA some day. Seems to be taking forever, so mega "hate" seems inevitable.
MM

Paul in Kansas City

the canadian oil sands; cash generated may be close to 18% before cap ex; unhedged syncrude production and almost net debt free; in my opinion the current quote is more appropriate at $75 WTI; i think this can be viewed as an easy short (and perhaps a consequence of selling the canadian dollar against the US dollar) versus trying to sell WTI or Brent short. this company is much less complex than E&P or inegrated oil companies.

oldprof

Ann -- I agree. I should have mentioned energy as another theme. I have some Nat Gas holdings in client accounts.

Thanks!

Jeff

oldprof

Angel -- I absolutely agree that a contrarian play can and should go both ways. I am still searching for anyone other than David Goldman who sees a positive outcome in Europe.

Deciding which side is the contrarian play is part of the problem.

You have another point in your favor: Shorting bonds of any sort should eventually work, even if your thesis does not play out.

Jeff

oldprof

Proteus -- Thanks for the suggestions!

Jeff

Ann

How do you see Nat gas as a contrarian play? Everyone seems to think it is too abundantly available to be a good investment yet they run oil and gold to the moon. I feel like I'd rather own natural gas than gold, because it actually fulfills a need in our lives. Jeffrey Gundlach has mentioned it as a sleeper investment idea as well.

Angel Martin

Pacioli, I currently don't have this trade on, it's the kind i like to do with options rather than, say, shorting BUND or BUNL.

Unfortunately, as far as i know, there is no Bund reference ETF that currently has options... anyone know of one ?

You could also go into the futures market for options on bunds.

Proteus

I like your thinking. Junk bonds can always improve credit quality (if they don't go belly up), but AAA bonds can only go one way - down.

pacioli

Angel -

You are right on. But I have a question on mechanics.

Are you shorting actual bunds, and ETF, options?

How do you play it?

Angel Martin

Jeff, the corollary to buying something everyone hates; is to short something everyone loves.

Here's my contrary idea on europe, short bunds. My thinking on this is that the guys who made the most money shorting subprime were the ones (as documented in The Big Short) who shorted the highest rated tranches.

If europe blows up, my contrarian view is that Germany goes with it and bunds tank.

Time frame: now to the end of dec, and again starting in march to june.

Proteus

Wow, what an opportunity!

Economy - I'll second your ORCL choice, and nominate INTC. No reason other than I like them.

Europe - John Hempton (Bronte Capital) bought Credit Agricole but had to sell; I'll steal his idea and say French (and German) banks are reviled, as well as cheap, if they survive. I like and own JPM, but my suggestion is one you mentioned a while ago and got hate mail: Goldman Sachs. A friend's daughter works there and says the culture is incredibly polite and customer focussed. I think GS is a bargain somewhere below $100. Holding time for both is over two years. Bonus: Citi in 5+ years.

Health care - I prefer Aetna to UNH. Call them up as a customer and Aetna blows UNH away, plus AET has been pretty tough on hospital cost negotiations.

Supercommittee - Defense seems to run in long cycles. Have to go with my ex-employer Lockheed Martin. After years of bloated management finally starting to cut some of the overhead. Low P/E and a nice dividend are pluses.

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