Trader Talk

Trading the Next Two Days


1) While the general feeling is that this will be a quiet two days due partly to the Rosh Hashanah holiday, there is a fly in the ointment: next week's quadruple witching expiration (the quarterly expiration of index futures and options, and individual stock futures and options) coupled with the Fed meeting has a lot of traders nervous about expected high levels of volatility. It's possible then that many traders with significant options and futures positions may try to roll over their positions early to avoid the turmoil. This could mean somewhat higher volume than expected on Friday of this week, and with fewer players around it could mean more volatility than usual.

Three-month LIBOR rates continue to drop at the injection of funds by the ECB yesterday and today by the BOE continue to help calm those markets.

2) Company stories:

GM initiated with a Buy at Citi helping futures pre-open. The current UAW contract with GM expires on Friday, acc. to Citi.

Alcatel-Lucent cuts 2007 revenue outlook, due to a change in capital spending among its North American wireless customers, down 10% pre-open

McDonald's not only doing great on same store sales, their increasing their dividend 50%--it now has dividend yield of 3%.

Steel maker Mittal up 5% on 27 m share buyback (almost 3% of shares outstanding)

3) Misc:

A second quant fund run by Goldman Sachs appears to have had significant losses. The Global Alpha hedge fund reportedly fell 22.5% in August on losses from currency and stock trades. Goldman already injected $2 billion another quant fund, Global Equity Opportunities, after it lost more than 20% in the beginning of August.

Bulls have pointed out that with financial stocks trading at recession levels and mortgage backed securities considered a near-toxic investment, there are huge opportunities to profit from pricing dislocations. Good example: fund giant Pimco is reportedly launching a $2 b fund to invest in distressed mortgages.

Investors realize that it is rare that an entire asset class comes up for sale. Another example: Carlyle Group is reportedly considering launching a fund dedicated to buyouts of financial-services firms.

Questions?  Comments?