Fast Money Behind the Money


  Wednesday, 2 Jan 2013 | 12:04 PM ET

Why Many Investors Are Selling Today's Big Rally

Posted ByJohn Melloy

Many investors were selling into the monster stock rally Wednesday on the notion that the "fiscal cliff" deal hastily hatched New Year's Day did not solve any long-term issues and set the country on the path of several more brinkmanship moments in Congress.

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  Monday, 31 Dec 2012 | 12:50 PM ET

No Pain, No Gain: The Hottest Trade of 2012

Posted ByJohn Melloy
Sam Hodgson | Bloomberg | Getty Images

While the risks can be large, sometimes the biggest paydays on Wall Street come from making a contrarian bet on the most hated sector on the planet. This was never truer than during 2012.

The housing sector, which brought the financial system to its knees in 2008 and continued to be an albatross around the middle class for the next three years, was the hottest trade this year as consumer confidence improved and as the Federal Reserve kept interest rates low. The central bank even went so far as to purchase mortgage-backed securities.

The iShares U.S. Home Construction ETF (ITB) surged more than 75 percent in 2012 as shares of homebuilders such as Pulte Homes and Lennar doubled or nearly doubled and construction-related stocks like Home Depot jumped. More complicated mortgage-backed securities were among the biggest winners for hedge funds brave enough to buy them.

"They took the painful writedowns and survived the hit," said Barry Ritholtz, CEO of Fusion IQ and author of The Big Picture blog. "And have you priced a mortgage lately? It's 3.25 percent for a 30-year fixed."

True to its function as a discounting mechanism, these stocks starting moving higher early on in the year in anticipation of a relatively sizeable increase in home prices.

It got there when prices climbed at a 4.3 percent annual rate in October, according to the latest seasonally-adjusted S&P/Case-Shiller 20-City Composite Index. That was higher than many economists predicted, but no surprise for buyers of these stocks.

"Since the businesses that were able to survive the home construction nuclear winter became so lean, they were highly leveraged to a pickup in business," said Mitchell Goldberg, president of ClientFirst Strategy. "The homebuilding sector was one of those stories that you knew it would turn around eventually, but it took a heck of a long time."

To be sure, the Home Construction ETF is down more than 60 percent from its high back in 2006. And during those days, home prices were posting double-digit annual gains on a monthly basis, according to S&P/Case-Shiller.

(Read More: Robert Shiller: Don't Await Housing Boom)

Many investors think the easy money has been made in this trade and there will be tough sledding ahead again for the sector as unemployment stays elevated and foreclosures pressure prices.

"A lot of people seem to think that if the market turns around, that means more of the same," said Professor Robert Shiller, Yale economist and co-creator of those very indexes, in an interview with CNBC this month. "We might see home prices go up a little bit above inflation, but it is not likely that we'll see a real boom."

So what's the most hated sector going into 2013? Going by ETF performance, it's natural gas with the U.S. Natural Gas Fund (UNG) down 27 percent in 2012. Feeling lucky?

For the best market insight, catch "Fast Money"' each night at 5 p.m. ET, and the "Halftime Report" each afternoon at 12 noon ET on CNBC. Follow @CNBCMelloy on Twitter.

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  Monday, 31 Dec 2012 | 12:03 PM ET

Here's What Pimco's Bill Gross Sees Going Higher in 2013

Posted ByJohn Melloy

Pimco's Bill Gross: Fearless 2013 Forecasts
Pimco's Bill Gross: Fearless 2013 Forecasts   

Bill Gross, the so-called bond king who oversees nearly $2 trillion at his firm Pimco, predicts unemployment may actually reverse course and rise next year. This bleak economic outlook will make for weak fixed income and stock returns and cause gold to go higher, Gross said.

The simple proclamation came as many do these days, via Twitter, on Sunday morning.

"2013 Fearless Forecasts: 1) Stocks & bonds return less than 5%. 2)Unemployment stays at 7.5% or higher 3) Gold goes up…," Gross wrote on the Pimco Twitter page.

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  Thursday, 6 Dec 2012 | 12:59 PM ET

Apple May Fall Another 20% on 'Panic Selling': Analyst

Posted ByJohn Melloy
Raymond Boyd | Michael Ochs Archives | Getty Images

Apple's stock is up Thursday, but the recent selloff may be far from over.

Extraordinary volume during the stock's plunge this fall signals another 20 percent decline is still ahead, a top chart analyst on Wall Street says. (Read more: Apple Defies 'Death Cross')

"Along with the two volume 'spikes' cited in my Nov. 16 note, yesterday (Wednesday) was another volume 'spike' day on the downside suggesting that the $528 support area will in fact be decisively broken on a closing basis over the near-term," said John Mendelson, technical analyst for ISI. "My view continues to be that because the stock ran up so fast last spring, the next significant support area is $420."

Technical analysts like Mendelson, who was ranked 19 times in that field by Institutional Investor magazine over his long career, often look at volume to gauge changes in supply and demand for a stock. In this case, because the heavy trading is occurring as Apple is falling, it may be signaling a mass, ongoing liquidation as the year comes to a close.

Apple fell 6 percent Wednesday to $538.79 for its worst one-day loss in four years. About 37 million shares changed hands yesterday, almost 70 percent more than the average daily volume for the stock. (Read More: 'A Real Conflict' for Apple Stock: Milunovich)

Mendelson is focusing on the $420 level because that is where the stock established a base, trading around that price for a few weeks at the beginning of January before taking off.

"Technical analysts follow spikes in volume because they often signal panic selling or panic buying," said Dennis Gartman of The Gartman Letter. "History shows that they often mark major turning points for stocks."

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  Tuesday, 4 Dec 2012 | 3:43 PM ET

Red Lobster Fears Diner Backlash Over Obamacare

Posted ByJohn Melloy
Red Lobster restaurant in New York City.
Victor J. Blue | Bloomberg | Getty Images
Red Lobster restaurant in New York City.

Darden Restaurants, owner of Red Lobster and Olive Garden, fears a backlash from customers angry about its efforts to convert more workers into part-time positions so it can avoid paying for their health care.

How concerned is the chain? So much so that the world's largest full-service restaurant company used a veiled reference to this possible boycott as partly to blame for its lowered 2013 forecast.

"Our outlook for the year also reflects the potential impact, though difficult to measure, of recent negative media coverage that focused on Darden within the full-service segment and how we might accommodate healthcare reform," said Clarence Otis, Darden CEO, in Tuesday's news release.

The company started running a test program to limit more workers' hours to under 30 per week in certain markets. This would lower costs for Darden in 2014, when the new health care bill will require companies to provide benefits to all full-time employees. (Read More: Prepping for Obamacare, Chain Cuts Workers' Hours)

Darden shares got slammed after it said earnings for 2013 would be as low as $3.29 a share. The consensus estimate among analysts was $3.88 EPS. (Read More: Wal-Mart Employees to Pay More for Health Care)

Many investors laughed off Darden's suggestion that the "media" would keep diners away next year as it takes step to skirt so-called Obamacare. They said a miss that big was due to structural problems facing the restaurant space.

"Costs at restaurants are set to continue to rise," said Brad Lamensdorf, manager of the Active Bear ETF (HDGE). "A rising minimum wage and rising costs of food inputs, especially organic, should keep pressure on restaurant margins for 2013."

The manager is short — or betting against — Chipotle (CMG) for these very reasons.

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the 'Halftime Report' each afternoon at 12:00 ET on CNBC. Follow @CNBCMelloy on Twitter.

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  Tuesday, 4 Dec 2012 | 12:37 PM ET

The Most Dangerous Idea in Washington: Economist

Posted ByJohn Melloy
Scene from Groundhog Day
Source: Columbia Pictures
Scene from Groundhog Day

Ethan Harris, a well-respected economist for Bank of America Merrill Lynch, sounds very afraid when he talks about the "increasingly popular view" that going over the "Fiscal Cliff" this year will do minimal damage to the economy and make possible a better deal next year.

"One of the most dangerous ideas circulating in Washington is that it is okay to go over the cliff temporarily," Harris said in his latest note to clients. "Threatening or actually going over the cliff will likely do serious damage to economic and market confidence. What some people are calling a 'bungee jump' could cause an economic heart attack."

Harris goes on to cite a New York Times piece that which plays down the effect no deal on Jan. 1 will have on the markets and the economy. The piece also suggests going over the cliff could be an effective negotiating ploy for the Democrats as Republicans will likely get the blame. (Read More: Some Analysts Doubt Dire Warnings About 'Cliff')

Republicans came back Monday with a formal counteroffer to the President Barack Obama's cliff compromise, but it was quickly rejected by the White House and Sen. Harry Reid for not addressing raising taxes on the wealthy. (Read More: GOP Offers Fiscal Cliff Plan)

"It will be exactly like what happened when TARP (the bank rescue plan) went before Congress in late 2008," said James Lebenthal of Lebenthal Asset Management. "The politicians puffed themselves up, voted it down, and the markets went straight down. Four days later they reconsidered and passed it."

The expiration of tax cuts and the automatic spending cuts encompassing the fiscal cliff will cost the economy $600 billion, according to the Congressional Budget Office. (Click Here for Complete Coverage of 'Fiscal Cliff')

Bank of America's Harris goes on in the note to lay out the flawed reasoning behind allowing the economy to go over the cliff, including the notion that the public will realize that the impasse is temporary and the fact that Treasury prices actually went higher after the debt ceiling fight last year triggered a debt downgrade.

His reasons for fearing this "bungee jump" strategy include a fight that drags on into 2013 further than people realize, causing companies to further curtail capital spending. He also cites the fact that the Republicans have some renewed leverage next year by threatening to let the debt ceiling expire.

"The fiscal cliff is just the latest manifestation of a trend toward using brinkmanship to reach decision rather than true bipartisan negotiations," said Harris. "Bungee jumping is a good experience for thrill-seekers, but not for the economy."

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the 'Halftime Report' each afternoon at 12:00 ET on CNBC. Follow @CNBCMelloy on Twitter.

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  Monday, 3 Dec 2012 | 1:16 PM ET

One-Time Hedge Fund Wiz Faces Second Abysmal Year

Posted ByJohn Melloy
John Paulson
Jin Lee | Bloomberg | Getty Images
John Paulson

One of the hedge funds run by John Paulson, whose prescient bets against housing where chronicled in the book "The Greatest Trade Ever," is on track to be the second worst performer of 2012 among the universe of funds tracked by HSBC.

Last year, it was the worst.

Paulson's Advantage Plus fund, which uses additional leverage than his other funds, is down 19 percent through the end of October, following a 53 percent loss last year.

The fund bests just the Conquest Macro Fund, which is down 27 percent through the end of November.

The firm's other flagship fund, the Paulson Advantage Fund, is down 13 percent this year, putting it among the top 10 losing funds in the HSBC universe this year as well.

Paulson's funds are underperforming because of a bet on a Euro collapse and subsequent positions in gold and makers of the hard asset. Fast forward: the Euro is little changed on the year and one of the firm's biggest holdings, South Africa's AngloGold Ashanti (AU), touched a 52-week low last week.

"A potential collapse of the Euro triggered by a Greek default or other event could throw the world into recession and serious financial disorder," wrote Paulson in the outlook section of his 2011 year-end letter.

It's easy to pick on Paulson, whose bets against the housing market made him a multi-billionaire and were immortalized in more than one books and glowing articles, however most hedge funds are underperforming the market this year.

The Hedge Fund Composite Index from Bank of America shows hedge funds are up just 2 percent in 2012, trailing the 14 percent gain in the SPDR S&P 500 ETF Trust (SPY).

Ironically for Paulson, the best-performing hedge fund in the HSBC universe is the BTG Pactual Distressed Mortgage Fund, up almost 40 percent so far in 2012. The fund, managed by a Brazilian wealth manager, has benefited from a comeback in the very kind of residential mortgage securities that Paulson bet against during the crisis.

Among the big name winners this year is Daniel Loeb. His Third Point Ultra Fund is up 25 percent as of last week, likely because of a comeback in shares of Yahoo.

For the best market insight, catch "Fast Money" each night at 5pm ET, and the "Halftime Report" each afternoon at 12:00 ET on CNBC. Follow @CNBCMelloy on Twitter.

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  Tuesday, 27 Nov 2012 | 1:17 PM ET

Exodus From Stocks Grows: 'Investors Are Turning Tail'

Posted ByJohn Melloy
Fear of the “Fiscal Cliff” is causing the biggest exodus from stocks this year as investors essentially put their money under the mattress rather than trust Congress to come up with a compromise. »Read more
  Monday, 26 Nov 2012 | 11:26 AM ET

Apple Is So Big, Citigroup Is Now Triple-Teaming It

Posted ByJohn Melloy

How many analysts does it take to make a "buy" call on Apple ? The answer, at least according to Citigroup, is three.

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  Friday, 23 Nov 2012 | 2:13 PM ET

Smart Money? Hedge Funds Now Worse Than Mutual Funds

Posted ByJohn Melloy

Hedge fund managers don't have much to be thankful for these holidays, as failure to beat low-fee index funds will likely infuriate investors shelling out hefty fees for their services.

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