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Fresh Ways of Looking at Volatility

The S&P 500 (SPX) has risen or fallen by 5% or more on 10 trading days this year. In fact all of those 10 daily moves have occurred in the last 29 trading days (since September 29).  From 1950 through September 28, 2008 the SPX has risen or fallen by 5% or more on only 19 occasions with 5 of those 19 days  associated with the 1987 crash. By this measure we are in unchartered volatility territory.

Speaking of unchartered volatility territory, the LakeView VDEV Volatility Index hit another all-time high today of 4.22%. The VDEV is posted everyday on the LakeView Asset Management website under "News and Events" and on TheFinanceProfessor.com website on the Bulletin Board.

We can look at volatility from another perspective – the paucity of days with small market moves. On average the SPX rises by 0.03% per day. The standard deviation of daily market moves is 0.90%. Thus we would normally expect the SPX to move by 0.03% +/-  0.90% on any given day which equates to a range of -0.87% to +0.93%. On average the SPX traded in this range approximately 77.35% of the time since 1950. However, in those 29 trading days since September 29, 2008 we have traded in the one standard deviation range on only 4 trading days. An absence of a lack of volailtity is another sign of volatility. 



Posted By Scott Rothbort at November 6, 2008

Budweiser Discount to Inbev Deal

Budweiser (BUD) continues to trade at a big discount to the $70 all cash acquisition price from InBev. Yesterday InBev affirmed that the deal is on track. I hear from my investment banking experts that the deal is fully funded. However, the arbitrageurs who would normally be bidding up BUD on the 7.3% discount to the deal price are not getting the funding to play the game. The prime brokers simply are not letting any of their liquidity hoard out of their hands as hedge funds continue to blow up. It is just another sign of the times.



Posted By Scott Rothbort at November 7, 2008

Ralcorp - Enjoy a Good Bowl of Recession

Bloomberg TV ran a nice story on Ralcorp (RAH) this morning. RAH produces generic foods and recently purchased Post cereals from Kraft (KFT). In this economy more consumers are going to trade down to cheaper (or as we say in economics inferior) priced goods. RAH should benefit from this shift in consumer purchasing habits. Furthermore, RAH products are in the consumer staples sector which is rather inelastic relative to price changes. Lastly, input prices for RAH are in steady decline. In the most recent issue of the LakeView Restaurant and Food Chain Newsletter I discussed RAH in greater detail.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC was long shares of RAH --- although positions can change at any time.

A one year subscription to the LakeView Restaurant and Food Chair newsletter only costs $199



Posted By Scott Rothbort at November 12, 2008

WalMart May Get An Antitrust Reprieve But ....

Today WalMart (WMT) reported its earnings, beat by a penny and confused everyone with its convoluted forex laced guidance for 4q. I have been quite public expressing my opinion that WMT would be a victim of Obama policies. In particular I am worried about potential anti-trust efforts to break up WMT as well and the impact of the employee free choice act.

However, Andrew Ross Sorkin had a very interesting article in Tuesday’s New York Times. In the article he discusses a conversation that he had with David Boies, a prominent attorney who was hired by Washington to “bust up” Microsoft (MSFT) in the 1990s.  Boies is of the opinion that Obama would not take an active antitrust stance in his first two years of office.

I agree. I think that given the state of the economy that Obama is going to be far less socialist in his policies in the early part of his administration. As a result, I am going to back off on my concerns for WMT in the near future. Though WMT will get a reprieve on the antitrust front I expect that to be short lived. The bigger issue on the labor front could be a more immediate problem for WMT.

Benefitting WMT in the short run will be the continued trading down by consumers of all income levels. Thus, WMT could be a good investment for the first two years of Obama’s presidency but after such time the festering issues I described could begin to surface and turn WMT into a great short.

 

 

 



Posted By Scott Rothbort at November 13, 2008

Analyst Upgrade for Yum Brands Makes Sense

Yum Brands (YUM) caught a nice upgrade to buy from UBS (USB) today. The stock is rallying about 3 - 4% on the analyst report. I agree with the bullish conclusion that the analyst arrived at. UBS lowered its price target to $40. My target is $42 so we are now far off. YUM will benefit from declining commodity prices and the substitution effect as consumers trade down to more value oriented restaurants. The problem with YUM is that perception by the investing public is that YUM is more like Darden Restaurants (DRI) and Brinker International (EAT) than McDonald’s (MCD). The truth is that YUM’s businesses are much closer to that of MCD than the casual dining restaurants. YUM has a similar growth strategy in China to that of MCD. Stick with YUM because there is good value in the stock.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC was long shares of MCD & YUM --- although positions can change at any time.

A one year subscription to the LakeView Restaurant and Food Chair newsletter only costs $199


 



Posted By Scott Rothbort at November 17, 2008

If You Are Flummoxed By Action in the Index Futures Markets Then You Are Not Alone

If you are flummoxed by the relationship between pre-market moves and market action when the market opens then you are not alone. The movement in the e-mini futures has been volatile in the last half hour of trading, after the market closes and before the market opens. Given the lack of liquidity in the equity markets right now, it does not take a huge amount of trading in the e-minis to move the markets in a dramatic fashion. The problem is that the futures markets are regulated by the CFTC and stock markets are regulated by the SEC. Both are failing to take action as this problem gets more virulent. Something needs to be done by either of these regulatory organizations or our legislators to restore order to the markets. If you want to understand index futures in greater detail I suggest you read an article that I wrote for The Street.com (TSCM) last year titled Five Things You Should Know About Index Futures .



Posted By Scott Rothbort at November 19, 2008

Seven Expectations For This Year's Holiday Shopping Season
There is no doubt that this holiday shopping season will be more challenging in 2008 versus last year. Here are some of the factors and trends that I foresee this year:
  1. Overall consumer purchases will be down versus 2007. I expect consumers to shorten the circle of recipients for which they will purchase holiday gifts. So while the immediate family – children, parents, grandparents and grandchildren – will still be receiving gifts, the second order gift giving will be trimmed back. The family dog should expect to be less spoiled than in the past.
  2. There are really no must have items that consumers are clamoring to buy this year. The surge in flat panel televisions occurred one and two years ago. There will be some consumers seeking to buy flat panels on sale but the demand has dropped off. No new game consoles were introduced this year and there are no big new game titles that are attracting gamers’ attention. We are in between upgrade cycles. Finally, on the toy front, there are no new Tickle-me-Elmo type toys that caused fights amongst grey haired ladies in years gone by.
  3. Black Friday traffic will be strong as stores opened as early as Thanksgiving evening. A beneficiary of the early heavy traffic will be mall based restaurants and food courts which should be packed as shoppers still have to eat. This will continue the trend of quick service and lower priced restaurants stealing business from the higher priced eateries.
  4. In 2007 Thanksgiving was several days earlier than in 2008. Thus we have less shopping days between Thanksgiving and Christmas this year. Deep discounting could start even earlier this year due to the shortened selling season.
  5. Falling gasoline prices at the pump are going to buffer the extent to which retail sales will get hit by the economic slowdown.
  6. Gift cards will become an even bigger aspect of holiday sales than in the past.
  7. Holiday parties thrown by companies are being down sized or eliminated. Again this will negatively impact the casual dining restaurants and chains which provide catering services.
  8. For more ideas on restaurant stock ideas subscribe to the LakeView Restaurant and Food Chain Report newsletter.


Posted By Scott Rothbort at November 28, 2008

Scott Rothbort

About Me :

SCOTT ROTHBORT

THE FINANCE PROFESSOR

 

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational website TheFinanceProfessor.com and a frequent contributor the TheStreet.com where he also writes a weekly article as The Finance Professor

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com.

 


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