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  • Overvaluation Pervasive Among The Industrial Cyclicals - A Survey Of Timely Short-Sale Candidates
    Tue, May. 20 AA, CMI, NAV 9 Comments

    Summary

    • Sharp declines among overvalued technology stocks and U.S. small-caps have garnered a great deal of attention in recent months, yet few are asking “which overvalued sector is next?"
    • A cursory review of various industrial cyclical stocks reveals peak-level valuations and frothy, overbought prices.
    • Current valuations, coupled with financial and operating leverage, suggest that long-term risk-reward among most industrial cyclicals is heavily skewed to the downside.
    • Disappointing future macroeconomic performance, likely portended by a flattening yield curve and sluggish copper prices, represents an obvious catalyst for a substantial correction in the coming months.
    • Given the risk-reward calculus at current valuations, short-sales of select cyclicals may be attractive as hedges on a long-oriented portfolio.
  • Assessing The Growth Scare At Kinder Morgan
    Thu, Mar. 27 KMI 106 Comments

    Summary

    • In recent months KMI and KMP have been hit by a perfect storm of negative sentiment, particularly fears of a secular growth slowdown, that has unduly depressed stock and unit prices.
    • A careful analysis of the growth slowdown thesis reveals that it is based on faulty arguments and misconceptions, as well as media-driven herding bias.
    • KMP/KMR and KMI represent superior risk-adjusted investments at the present time, with a potential total return of 40% over the next 12-18 months.
  • Chasing Your Tail: An Alpha-Seeking Tail Risk Hedge For The Current Market
    Mon, Mar. 24 EWH 4 Comments

    Summary

    • The 2008 Global Financial Crisis and the general prevalence of event-driven waterfall declines over the past 15-20 years have sparked an interest in "tail risk" insurance among institutional investors.
    • Most tail risk protection strategies use a passive approach, have high costs and are not widely available to retail investors who in any event have limited awareness of the concept.
    • Long-dated, deep out-of-the-money put options on the EWH are a timely example of a low-cost, alpha-oriented tail risk hedge that is available to retail investors.
  • 2007 Revisited: Where To Invest In A Late-Stage Bull Market?
    Aug. 20, 2013 EPD, PAA, KMP 31 Comments