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02/03/2018 Weekend Update

02/03/2018 Weekend Update

Postby Cobra » Fri Feb 02, 2018 5:49 pm

62% chances up the next week.

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Re: 02/03/2018 Weekend Update

Postby Cobra » Fri Feb 02, 2018 5:51 pm

When VIX rose 27%+ in a single day, buy SPY at close, HOLD until the very first day VIX rises less than 27%, you have 66% chances to make money with profit factor 1.6 which is not very good setup overall though.

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Re: 02/03/2018 Weekend Update

Postby Al_Dente » Fri Feb 02, 2018 9:28 pm

WFC:
Two hours after the close, the Fed announced unexpectedly harsh sanctions against Wells for a host of consumer and oversight abuses dating back to its infamous cross-selling scandal.
Press Release on Yellen’s last day in office: “"The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers,” Yellen said in a statement. "
The Fed has to approve a detailed plan of action to be submitted by the bank.
WFC already responded to the letter, promising to make things right and its board said it would deliver its improvement plan within 60 days.
WFC shares plunged a staggering 8% in after-hours trading
https://www.zerohedge.com/news/2018-02- ... lls-fargos
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Re: 02/03/2018 Weekend Update

Postby Al_Dente » Sat Feb 03, 2018 2:50 pm

Junk, a common measure of credit risk (default risk), has been crushed lately and is now oversold.
Time for HYG TRIVIA:
HYG is the largest junk bond fund, with approximately $15 billion dollars in “net assets” (as of 2/2/18).
It has 1029 holdings, and no single holding is weighted more than 0.58% of the portfolio. (That’s a bit misleading because they hold dozen/s of different bonds issued by the same corporation, like for example Sprint).
The bonds are rated: BB (41%), B (44%), and below B (14%), hence the nickname “junk”. That’s a total of 99%, with currently 1% in “Cash and/or Derivatives.”

According to the issuer iShares, as of 2/1/18 the sector weighting is:
Communications 24.39% (e.g.: Sprint, Clear Channel, Softbank, T-Mobile, Dish Network, Netflix, Sirius XM Radio, etc.)
Consumer Non-Cyclical 13.99% (e.g.: tons of healthcare and hospitals: Valeant Pharma, Tenet Healthcare, HCA Healthcare, Community Health Systems, and a smattering of food/staples: Albertsons, Post Holdings, etc.)
Energy 13.54% (energy used to be more like 17% of the portfolio)
Technology 7.71%
Capital Goods 7.52%
Basic Industry 5.17%
Finance Companies 3.31%
Electric 3.16%
Banking 2.27%
Insurance 1.24% (Why don’t they aggregate Finance Companies, Banking, and Insurance, and call this Financials, 6.82%)
Transports 1.02%
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Re: 02/03/2018 Weekend Update

Postby Trades with cats » Sat Feb 03, 2018 9:05 pm

Russel 2000 credit issue. According to Goldman about 40% of R2K debt is floating rate tied to LIBOR. Needless to say LIBOR has been going up very aggressively.
I don't want to insult anyone's understanding but at the same time this is very important. The first step in credit analysis is to do the ratios or the spreads on the customer where the income statement and balance sheet are stated in various ratios then compared to industry standards.

Well so what Cats?

If borrowing rates go from 1.5 to 3 percent interest expense doubles. All those ratios go to hell in a hurry. The big one is debt coverage ratios, as in ratios of income (or better) free cash flow to debt payments. So steadily rising rates lead to the nightmare scenario where your free cash flow is being sucked up by interest payments. Well why didn't they term out the debt when the Fed started raising. I can only think of two reasons, first frog in a pot on the stove. I mean how do you tell the board that you want to really jump interest expense and have a major miss on the quarterly because that old lady is raising rates. Second reason the bank wouldn't term it out because they aren't that attractive a customer and the risk guys are allways happier with LIBOR floaters.

I could be way off base on this and if you think I am I would appreciate it if you say so. But if I am mostly right than the 3 to 4 increases coming up in the next 12 months are going to be a big drag on the Russell.

12 month libor 1 year ago 1.72
1 month ago 2.11
yesterday 2.26 or a 25% increase in interest expense in 12 months :cry:
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