Arena Pain, Elan Gain

September 30, 2010

Time to check in on my drug speculations.

Elan is behaving as though the market thinks uptake will continue with Tysabri.  The shares I bought in the mid-$4’s when an oral treatment was approved have gone up a buck or more, so I’m hoping to see the position shrink by having calls exercised.  At this point, my position will get one third smaller in two weeks when the October options expire.

Arena, on the other hand, is proving itself a true dog.  Still, even dogs have their day.  For this one, it’s looking like $1.50 per share is working as a trading bottom.  The volatility premium in the options has gone down even faster than the stock, however, so I haven’t written the calls on it that would mitigate my losses.

Just to mention a third among my little collection of these speculative pharma’s, SNTA has been rallying nicely lately, and I found myself moved to write a gaggle of February $5’s against the position in one of the accounts.  I got over 50 cents a share for those calls, which is not bad for a $4 stock.

Just be careful when you look at these, because, as ARNA proved so well, $4 stocks can become $2 stocks.  On the other hand, DNDN showed us that $4 stocks can become $40 stocks.

What’s a mother to do?

hh


Bond Bear Re-Load

September 29, 2010

Yesterday and today I’ve been re-loading the shares of TBT that were called away on the last option cycle.  I’m not writing new calls on these just yet, because I expect the long end of the curve to back off a bit once the excitement about QE2 fades a bit.

The auction of the 5-yr Note was a real surprise to stock market bulls yesterday.  Oversubscription and a 1.25% coupon was as negative on economic growth and inflation as anything we’ve seen since the depths of the panic in 2008 and early 2009.

For those who don’t pay attention to bonds, this is what they were telling you:

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New Page

September 28, 2010

I’ve just put together a page full of links to posts that got lots of readers, or were good enough for a personal friend or two to pick up the phone and call.  That little list on the right hand column is almost random, since it shows which posts got the most “eyeballs” over the past 48 to 72 hours.

Now there will be a place where the greatest hits will live on.  I’ll update from time to time, when a new post strikes your fancy.

Here’s the new page (also available by clicking a tab at the top of the main page).


Network Welfare

September 28, 2010

Last night, and again today, I was watching cable channels (History, Discovery, CNBC) and I was struck by how many ads I see for motorized wheel chairs.

Nearly every ad includes an exhortation that you, too, can get your wheel chair for “no money out of pocket.”  One company even brags that 90% of their sales go to people who pay nothing for their five-figure devices.  It all comes from Medicare and private insurance.

Guess who pays for that.

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amREIT Thoughts

September 22, 2010

In a break with recent tradition, I’m writing about amREITs when they’re having a good day.

To update, yesterday I took advantage of the swoon in HTS price after the secondary to buy a few “trading” shares.  After giving effect to the $1.10 dividend they decided to give the new shares, I figured a net cost with a $27 handle would result in lunch money some time over the next couple of months.

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amREIT Postscript

September 21, 2010

Just to make it clear, I haven’t sold out of my mortgage REIT positions.  In fact, I wish I had left more in them, on autopilot, rather than a couple of recent speculations.

I’m not trying to scare you out of these beasts, because the rate environment is right for them to produce double-digit investor returns at least until we see unemployment head down sharply, housing stabilized and heading up, and (hopefully) even some wage inflation.

My last post was just to show where the risks are, including an emerging risk of being too big to move quickly.

hh


Bread or Circus?

September 21, 2010

I’ve been monitoring the CNBC runup to the Presidential town hall meeting they’re sponsoring.  As I’ve listened, I’ve heard them do something they failed to do for the past year and a half.

They’ve been fact-correcting (some of them).

That’s distinctly different from the theme they’ve had for some time, where they seemed willing to repeat any “pro business” line they had heard, irregardless of reality or truth.  I guess they were trying to get ratings the Fox way, and decided it wasn’t working.

Call that the “circus”…. so where’s the bread?

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Back to the Well

September 21, 2010

HTS and CYS both priced secondary issues this morning.

Cypress Sharpridge was going to issue 10 million shares, but found appetite for 13 million.  The price just under $13 a share was less than last quarter’s stated book value, but may be slightly above today’s book value, given the spread widening in Agency MBS land lately.  Their non-Agency paper has continued to tighten, but more on that later.  For them, the add-on capital is probably more about getting critical mass to support the management team than it is about increasing earnings per share by issuing new stock above book.

HTS came with 5 million shares in the high 20’s.  That’s in the range I suggested in my Hatteras overview, and will take their market cap into the billion and a quarter range, giving them up to $10 billion in MBS to play with.

As I’ve pointed out before, selling new stock at above book value is a “virtuous” Ponzi, assuming that they can put new capital to work just as efficiently as the old capital.

It’s that second part of the formula that worries me.

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Roubini Is Right

September 17, 2010

While I’ve occasionally disagreed with Nouriel Roubini’s prescriptions for our economic woes, I have to say that he’s right, but several years late, in his Washington Post Op-Ed today.

I tried planting this exact idea (except as a full “holiday”) during the summer of 2008, when a stimulus plan was being floated by the Bush Administration.  I even called a couple of reporters and a friend who is a Fellow at the American Enterprise Institute to say they should slip the idea into the mix of things being discussed as we went from bad to worse in the subprime crisis.

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Arena Postscript

September 17, 2010

When I heard that people were paying 65% to borrow ARNA shares to sell short, I knew that others were probably selling short without borrowing.  I also knew that my odds of winning on the trade just got much worse.  I had seen this movie before, after all.

But sometimes the movie has a surprise ending, where the company survives and investors who stayed with it actually get rewarded (DNDN).  Problem is, that happy ending may take years to happen, and my short strangle options expire tomorrow.

So, I will end up owning a big slug of Arena shares tomorrow unless I buy out those puts, and the lawyers have already started picking at the corpse in their race to the courthouse claiming fraud, even though the company is protesting like the Monty Python plague victim that they aren’t dead yet.

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