Comment of the Day
16th February 2023
Video commentary for February 16th 2023
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: stocks ease back on strong PPI numbers, bond yields advance, oil eases, zero day options exacerbate intraday volatility, Tesla downside key reversal. commerical real estate is the epicentre of risk.
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A $6 Trillion Wall of Money Revives Arcane Part of Wall Street
This article from Bloomberg may be of interest to subscribers. Here is a section:
Companies are grappling with the twin burdens of higher interest rates and slower economic growth, and some have already suspended dividends or put assets up for sale to pay debt. But with $6.3 trillion of outstanding corporate bonds alone coming due by the end of 2025, many are seeking alternative ways to protect their balance sheets.
Mall landlord Unibail-Rodamco-Westfield is one firm that’s been selling assets to pay down debt after its purchase of Westfield for about $22 billion in 2018 soured.
“We over-levered the company,” Unibail-Rodamco-Westfield Chief Executive Jean-Marie Tritant said in an interview. Falling values after the acquisition meant “our loan-to-value started to increase to a point where investors were somehow concerned about our ability to face our obligations.”
Tritant took over the firm in 2021 after a successful activist campaign backed by French technology billionaire Xavier Niel. As well as the disposals, the CEO stabilized the company by axing the dividend, limiting capital expenditure and extending debt maturities.
Eoin Treacy's view
Rising interest rates are a challenge for borrowers. The longer rates stay high, without a meaningful uptick in demand for what they are selling, the greater the risk of default. There are all manner of companies borrowing in this space but the most important today are those looking to refinance commercial real estate debt.
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U.S. Housing Starts Fell to Pandemic Lows in January
This article from Dow Jones may be of interest. Here it is full:
U.S. housing starts declined in January to its lowest level since June 2020, a sign residential construction is pulling back amid the current downturn in the housing sector. Here are the main takeaways from the Commerce Department's report released Thursday:
Housing starts, a measure of U.S. homebuilding, decreased 4.5% in January month to a seasonally adjusted annual rate of 1.309 million. This is the lowest annual rate since June 2020, at the onset of the Covid-19 pandemic.
Economists polled by The Wall Street Journal expected starts to decrease 2.3% to 1.35 million.
Housing starts were 21.4% below the same month a year earlier.
The drop was driven by both single-family and multi-family projects, which declined by 4.3% and 5.4%, respectively.
Housing starts data for December was downwardly revised to 1.371 million from 1.382 million initially estimated.
Monthly housing starts data are volatile. January data came with a margin of error of 15.9 percentage points.
Residential permits, which can hint at future home construction, increased by a marginal 0.1% in January on month, to a seasonally adjusted annual rate of 1.339 million. Economists expected permits to increase 1.5% on month.
Sentiment among home builders rose sharply in February for a second consecutive month, in a sign that the current downturn in the housing market could be bottoming out, according to data from the National Association of Home Builders published Wednesday.
Eoin Treacy's view
The lumber price has completely unwound its rebound and is back testing the lows posted in December. That decline is more about the reticence to build with so much uncertainty about mortgages rate than a sudden increase in lumber supply.
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Rush Into Meme Stocks, Zero-Day Options Fuels Latest Frenzy in the Wall Street Casino
Now, insouciant speculation has returned in another acronym, 0DTE, which stands for Zero Days to Expiration options. Short-term calls and puts have long been favorites of speculative traders because they cost less than lengthier contracts. To help traders scratch that speculative itch, the exchanges have been offering ever-shorter options until they got to 0DTE.
And their growth has been explosive, so much so that their trading volume is swamping the turnover in the underlying securities, reports Doug Kass, who heads Seabreeze Partners and flagged the 0DTE phenomenon for us. He likens it to the speculative frenzy once seen in the trading of hot initial public offerings, when new shares would change hands several times on their first day, he said in a phone interview.
These short-term options have succeeded meme stocks as the Street’s gambling vehicle of choice, adds Peter Tchir, the derivatives maven who heads macro strategy at Academy Securities. About 90% of his recent conversations are about 0DTE, he relates in an email. And Thursday saw record call-option volume, with the vast majority of expirations on Feb. 2 and Feb. 3. The SPDR S&P 500 exchange-traded fund (ticker: SPY), usually leads the most-active list; Tesla (TSLA) does the same among single stocks.
Eoin Treacy's view
This article goes a long way to explaining why the correlations between the VIX and stock market action have broken down this year. In a Bloomberg TV interview today Peter Tchir described the leverage on zero day options as close to 100:1 and that the VIX Index only looks at one-month volatility.
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Eoin's personal portfolio: commodity long initiated and stock option long initiated February 14th 2023
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.
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