Quick note on today…8/29/11

We think there is overwhelming evidence via the regional manufacturing surveys already released in August that the ISM due to be released 10am on Thursday will be below 50 representing a general contraction in US manufacturing. This will be the first below 50 print in almost 2 years. This is bad.

The euphoria today(index’s up 2%+) looks silly to us. As such, we are shorting the index’s and will see what happens by the end of the week.

LNKD quickie…

We’re trying to put a a more numbers based valuation together for LNKD. It’s been beaten to death everywhere but what the hell. It’s also recovered somewhat from the sell off and is back above $90(still well below our short call price of 98+ last month!).

As is the case with IPO’s there’s generally a lockup agreement of 180 days where insiders can’t sell. The lockup for LNKD is supposed to end sometime in November leading to a massive amount of shares potentially being added to the float as insiders sell. This has been pointed out elsewhere on the web and in analyst reports. Just something to think about.

We’re cautious about shorting right now at 90. As noted in our earlier post $110-120 will be pretty much an automatic short sign for us. We’re also skeptical about this latest market rally and if it continues we’d love to short LNKD into a big rally. The market will come back to earth.

As always, there is significant risk shorting stocks with a high short interest.

Urbana: if you liked it at $1.20 you’re going to love it at…

.97

Yes, after the dust has settled from the colossal meltdown and subsequent meltup of the markets over the last 2 weeks, Urbana corp has gotten hammered down to .97. And to this we’ll present a few things….

1) Urbana’s most recent NAV Calc http://www.urbanacorp.com/Documents/NAV/nav_aug_5_11.pdf

2) the current Market Value of their top two holdings CBOE and NYX as of Friday’s close? 90.6M

3) the current market value of Urbana as of Friday’s close URB.A and URB? 75M

Both the CBOE and NYX shares are fairly liquid. NYX avg.volume is ~3.5 million shares/day and CBOE is ~500k shares/day. So URB owns less than a days worth of NYX and a few days worth of CBOE. So pretty liquid stuff we’re talking about here. Assuming there’s no liquidation discount on the shares they could sell them at Fridays still depressed prices, pay down their debt of 14M to BMO(rate of 2.75% + prime) and still have 75M in the bank or .97/share.

The rest of the assets outlined in the NAV calc are a freebie. Cheers.

Give me your tired, your poor, your toxic assets….

presented without commentary…

“Give me your tired, your poor,
Your toxic assets, yearning to be bought at any bid,
The wretched refuse of your teeming balance sheets.
Send these, the illiquid, tempest-tossed to me.”

http://www.reuters.com/article/2011/08/10/bankofamerica-fanniemae-idUSL3E7J95EM20110810

Some musings on the FOMC release…

1) Fed acknowledges a deteriorating labor and consumer spending environment. It’s one bright spot? Business investment in equipment and software. No mention of the 2010 tax relief act which allows expensing cap-ex purchases including, of all things, equipment and software up to $500,000 in year one. This is due to expire at the end of the year. Not really Fed related per se, but will this be extended? We think so.

2) The Fed expects commodities linked inflation to continue to subside. We agree over the next 3 months. After that, not so much.

3) “Extended period” language for rates used prior is now a firm mid 2013. The target remains 0-.25% for the fed funds rate. They are unwilling/unable to do anything other than trying to set expectations.

4) Maturing debt on the balance sheet will be rolled and more easing is still on the table. The Bernanke put(QE3) is in play, but we think will require a 10-15% further drop in the market and unemployment increases.

That’s it for now the full release is below.

http://www.federalreserve.gov/newsevents/press/monetary/20110809a.htm

Pre-Bernanke action

Pre-Bernanke action

We’re a bit skeptical about what Benny and the Feds will say in this 2pm afternoon address. We are short the rally that’s occurred this morning. While we can’t overlook the possibility that QE3 will be announced we think it’s unlikely based on a few things….

1) It’s not the Feds mandate to prop up the stock market despite what some say and despite what the Feds actions sometimes cause.
2) Unemployment remains unchanged- the last NFP number was bad but not abysmal
3) Inflation per the gov’t calc is basically on pace with the target
4) Treasury yields are down-rates remain low.

It’s not of our opinion that the Fed has the license to do much more based on the fact that the stock market has had a mini crash over the past two weeks. We think there will be language hinting at possible further QE if the jobs number deteriorates or interest rates rise but beyond that, we’re skeptical.

The 2,500% that could have been…

not even annualized…just a straight percentage. See, we purchased some way out of the money Sept. 17 103 puts on the SPY a few weeks back. We’ve been pretty bearish the last 3-6 months. At the time they were trading at .13 or so… we flipped them at .20 bought back in…flipped them again around .20

As things deteriorated the last 2 weeks and the debt ceiling debate raged on we were tempted to double down and buy back in HEAVY. This was an avid discussion not a whimsical what if scenario. Alas, we opted against it. Those options are now trading at $3.35. That’s low teens cents to $3.35. A missed opportunity of well over 2,000% in a few weeks. This would have been HUGE.

Missed opportunities in trading are part of the game. “shoulda, woulda, coulda” as they say. To all those who lost their shirts the last few days or missed out on huge opportunities like us…stay clear headed, forward looking, nimble and patient. Change and volatility create opportunities. find them.

A quadruple-A rating

“In Omaha, the U.S. is still triple-A. In fact, if there were a quadruple-A rating, I’d give the U.S. that,” he(Buffett) told Fox Business News.

Yes folks, there is such a thing. The oft venerated and impossibly elusive “Quadruple A” rating. Some thought it went the way of the unicorn and coelacanth but the Oracle of Omaha is here to tell us that it should make a comeback and the US should be first on the list. We’d venture to think this quote is wishful thinking on Warren’s part. He does have a sizable derivatives book(~20 billion notional) tied to HY indexes (benchmark surged 150 bps just this first week in August) and Muni issuers. Both of which aren’t taking too kindly to the US downgrade.

There’s not much else to say about this so We’ll leave you with this thought…Whether you agree(cough, cough, White House) with Warren or not(cough, cough, everyone living in reality) buying US government debt is a tough case to make right now. Interest rates are artificially low and the dollar is being debased.

For bond holders this is like being kicked in the shins and then being kicked in the nuts. We’ll keep our shins and nuts intact, thank you very much.