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Peter Tchir
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Peter started TF Market Advisors in 2011 as a platform to trade and provide market information. The trading strategies are macro, but the direction and value decisions are based on insights into the credit markets. The firm’s commentary has been gaining respect and Peter has become a recognized... More
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  • I'm Pete and I'm Long. It's been 36 days since I was long. 9 comments
    Oct 3, 2011 10:22 PM | about stocks: HYG, JNK, LQD, SJB, SPY, DIA, IWM
    I have been very bearish. I fought some strong moves up. I argued why certain things wouldn't work - and by certain things, I mean everything the politicians out of Europe said. I'm not planning on being long for long. On the other hand, rarely have the technicians been so right. They all have said 1120 was support. If we bounced at 1130 or had overnight trading down at 1100 they just ignored that. Well almost everyone said if we broke 1120 we were going to 1080. The fact that we got there in an afternoon, with a bit of help after hours seems too good to be true.
    Europe is fracturing, but France, without a doubt is still pushing for a solution. European co-operation weakens with every uptick in the market, but seems to strengthen with every downtick. It just feels like we are due for a bit of a short squeeze scare (or at least something that encourages new weak longs now that these are flushed).
    The data has been marginal, but not horrible. When we were at 1200 on SPX I couldn't understand how anyone was willing to pay that given the data. At 1090 I think we are still too high, but am willing to listen to some arguments.
    BAC was a disaster again today in terms of stock. I keep thinking that they never guaranteed Merrill Lynch debt. Why they merged the BofA securities unit into the Merrill Lynch name is beyond me, but with FHA, the lawsuits against MER and CFCthat dwarf FHA's direct BAC lawsuits. MER also had bigger payments from the AIG bailout than BAC got. With renewed focus on the legacy mortgage business, it seems like there is a chance BAC could figure out a way to ring fence the losses. I would be more confident if they had made the decision to keep the less appealing, but safer, BAC Securities Inc. name, but no point crying over spilled milk or ceo's who made 10's of millions for making bad decision after bad decision. It just seems like there are things that BAC could do to protect BAC shareholders that aren't being given any value right now.
    Then there is Morgan Stanley. I do believe there is something behind the scenes causing the big moves in the stocks, bonds, and CDS, but that it is more likely tied to principal investments in China, than exposure to European banks. But, there were people yapping about 1 year CDS, who can't spell inverted yield cerve. Where there is smoke, there is often fire, but things rarely fall apart this quickly either, especially when too many people with so little credit experience are all trading based on the lack of information. There are clearly people being told to get out of MS risk and reduce notionals. They are paying 600 bps to buy 1 year protection, because all they can lose is 6%. They know that if they pay 530 to buy 5 year CDS, that they could lose 25% of the notional if it all goes back to normal. Flat to inverted yield curves are a bad sign, but rarely does it happen over just a couple of days, especially with financials who in this day and age have so many "alternative"/"fed based" sources of liquidity.
    So I finally got a bit long. It scares me to death. I bought some HYG and XLF and covered all my SPY short. Couldn't decide on DAX. I will be very careful, only bought the things I think could have the biggest short squeeze bid tomorrow, and I do remember that we are only 30 points lower than we hit last Monday. 30 points is rounding error in this market. But we were also at 1185 just a week ago. I'm playing around for a quick bounce. I might be being too cute, but too many of the moves seem ripe for a rebound. I do think, as some smart commenter on ZH pointed out, that 1120 is now resistance rather than support.
    Good luck, and thankfully I went against my mother earlier today and sold 1125's :) Remember when 40 points in the SPX actually meant something? Maybe the governments, and the central banks should step out of the markets, stop manipulating every tick, enforce some of the existing rules, stop bowing down at the altar of algo trading, and work on creating a market that humans can understand and take risk in and build for a future.
    And I can't help but mention that BRK/A hit 80k back in 1998. It is at 105k right now. That is a 30% total return in more than 13 years. No dividends for shareholders in that time. In that time, every word he utters is broadcast widely. Governments do as he says. Investors pile into his trades after he is already long (only employees get to front run). He owns rating agencies, but then publicly comments on what things should be rated. With all the advantages, the returns, frankly, don't seem that great. Are we as a country, ignoring some people, who may not always be bullish, but at least have been right more often than not in the last 10 years? As a business and a country we should be looking for other oracles, and some of the best out there aren't always positive, but maybe that is what we, collectively need, a harsh dose of reality.
    Themes: Bonds, Market Outlook, Macro View Stocks: HYG, JNK, LQD, SJB, SPY, DIA, IWM
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Comments (9)
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  • mboulto1
    , contributor
    Comments (6) | Send Message
    Enjoyed your article. First comment status???
    You might well be right - but re equities the risk is a 4% downer at pre-open from events in Europe, and TED spread up another 10 points. Sounds like a better argument for sitting in cash and reloading the shorting pistol if you are right.
    I'd prefer to be adding to shorts on tonight's expected brief POMO rally, if it happens with so many expecting it - I would if I was in the right timezone.
    4 Oct 2011, 12:59 AM Reply Like
  • Peter Tchir
    , contributor
    Comments (1260) | Send Message
    Author’s reply » i'm not longer term bullish...more for a quick trade...finally covered all shorts...was very nervous earlier...bought a bit more...pulling back to small long, though i do like hy here
    4 Oct 2011, 11:15 AM Reply Like
  • mboulto1
    , contributor
    Comments (6) | Send Message
    You were very clear on not being longer term bullish. Well you have been right as of the close - congratulations. Have to watch out when Bernanke speaks. Will be interested to see how far it goes.
    4 Oct 2011, 04:41 PM Reply Like
  • mboulto1
    , contributor
    Comments (6) | Send Message
    Tried to edit my last comment so I sound less like an idiot. No luck. :-)
    4 Oct 2011, 07:06 PM Reply Like
  • Peter Tchir
    , contributor
    Comments (1260) | Send Message
    Author’s reply » lol :D
    4 Oct 2011, 08:04 PM Reply Like
  • sticskforbrains
    , contributor
    Comments (58) | Send Message
    I don't want to sound disrespectful or anything because I think you publish some of the best there is on SA but when you say 1090 is still to high, where does that come from? Are you targeting some kind of equity risk premium or something? If it was based on a technical argument or if it was just an intuition thing don't worry about it. I was just curious.


    The sense I get from talking to some investors is that there is a lot of dry powder out there and people are just waiting for a little stability before deploying. Inflows aside the general consensus here is that US corporates are trading at implied hazard rates far above fundamentals, so your intuition is making me worry a bit.
    5 Oct 2011, 06:40 PM Reply Like
  • Peter Tchir
    , contributor
    Comments (1260) | Send Message
    Author’s reply » more of a gut call on guess of how bad it is in europe vs here...that they would be able to contain it.. i think the floor is getting lower now, sadly, because the big governments are going "all-in" and it will be harder to stop the next downturn, especially if it is caused by recession as opposed to this set of problems in europe that occurring or at least started to occur in what seemed like decent economic times.


    The 1080 or so came, because it felt since we hit 1100 the first time, things are worse, so why not get back to that. I do watch the most beaten up names. I tend to play them from the long end, as I look for things that are over shorted, and can be squeezed. Was looking for a better signal in those names that things had turned around.


    i get very confused by the "dry powder" argument. Hedge funds can be long or short. They will bet on whatever they think is working, so dry powder can go both ways. Hedge funds, seem to focus so much on monthly returns, that even if they are small long, could add money in a heartbeat, they are very reluctant in a down market, because they are nervous about their monthly returns. To the extent the hedge funds are the "best and brightest" investors out there, they have let the 2% fee on AUM drive their philosophy and now are very reluctant to risk capital when they are losing money (short of long) and get far too big in a position when it is working.


    My other "concern" is the concensus seems to be that lots of cash at corporates. Yes, but how much is through retained cash flow, and how much from borrowing in the corporate bond market? I think there is more debt, that is coming closer to needing to be rolled over every day than is talked about. Could be wrong, but rarely do I hear about "net cash" on balance sheets, it is just a) lots of cash, therefore b) pristine balance sheets. Balance sheets have two sides and I am less convinced that the pristine balance sheet chorus is looking closely at what debt is outstanding and when it is due.


    On a similar subject, Newpage filed, Friendly's filed, AMR and EK were both rumored to file, stocks sold off, and in spite of no filing yet, the stocks have failed to stage a significant rebound. Makes me concerned that there are deeper problems just below the surface than are being talked about openly.


    And now my intuition, and completely random thought process/babbling may concern you :( but wanted to try and respond
    7 Oct 2011, 08:44 PM Reply Like
  • sticskforbrains
    , contributor
    Comments (58) | Send Message


    When I said investors I don't mean the managers. I meant their clients. Take pensions for example, despite the extreme underfunded status of most pensions, it seems that most of them are content to hold cash and treasuries until they feel it is safe to load up on risk again.


    Large asset managers can really move entire markets on flows. From a structural stand point, if every central bank in the world is determined to print money, P/Es and growth multiples will invariably increase because the alternative is to hold fiat currency. A crisis in confidence will certainly drive asset prices down in the short term but you can only hold back the tide of cash for so long.
    10 Oct 2011, 12:46 PM Reply Like
  • Chambord
    , contributor
    Comments (77) | Send Message
    There isn't a lot of mystery with AAmerican. Just look at their results the last few quarters versus their peers. Their costs are higher than everyone else and it shows. They have managed to avoid bankruptcy and obviously prefers that route, but unless the pilots concede enough, they will continue their decade long MO of retreating from markets until they vanish. The airline cannot start any new long distance/more profitable routes to Asia or whereever without new agreements from their pilots unions seemingly for each new route. So they run routes via partners, or they concede those routes to the other legacy US carriers. The recent low stock price brought the pilot's union to the bargaining table again. A more likely course is that the price will go low enough for a hostile(to labor at least) takeover to occur by bondholders, followed by a prepackaged bankruptcy. The more interesting play among us legacy carriers is lcc. It's heavily leveraged and volatile like AA, but profitable with improving ratings. More importantly, it has beaten luv back in philly and in phoenix. Recession will likely push fuel prices lower, lcc does not hedge fuel costs, seat capacity was shrinking, and I believe, our bifurcated income society will always have enough airline passengers for the reduced capacity. I think lcc stock will do well.
    7 Oct 2011, 11:52 PM Reply Like
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