LOTS AND LOTS OF STUFF

6 things today

1) Sector rotation
2) More credit card woes
3) Housing inventory
4) Precedent set for predatory lending?
5) FX
6) Volumes

A few brokers are pushing the sector rotation trade; out of beta, into defensives. Both CS and UBS have notes out to this effect. It’s a good time to push it I believe. With markets having failed at their 200 day MAV, and indeed failed to make higher highs, the water feels a lot calmer for those thinking of shorting. The foodies and in particular the tobaccos would be my favourites. BATS on 11x 2010 vs long term average of 12.5x. IMT with greater EMEA and discount US exposure (although higher gearing and some divi worries). But if this works, I’d wager it’ll be very much a sectoral trade rather than stock specific. I don’t really understand telco, well it just kinda bores me really, so I stay away.

I’ve said before that credit card charge offs are only going one way. Even Moodys (and we know how on the money the credit agencies have been through all this) think the Stress Test adverse case was anything but. “SCAP loss rates for credit card assets range from 12%-17% in the Baseline scenario, and 18%-20% in the More Adverse one. We currently expect industry charge-offs to peak at 12% in the second quarter of 2010, which translates, roughly, to 22% on a two-year cumulative basis.” Anyway this leads conveniently into the news that Advanta (provides business credit cards) is, as of mid June, ceasing all new lending due to 20% uncollectable debts. Advanta is not a big deal in the scheme of the credit card market, but it is exclusively a small business lender. This area is in trouble. AMEX shut down its small business credit card business in Dec/Jan.

Following on from yesterday’s piece, Pull That House Bid?, I came across this chart on Zero Hedge which speaks for itself in showing the amount of inventory still out there before we reach an average trend line.
GS have agreed to pay the State of Massecheusetts $60m to settle a dispute over “predatory lending.”Now this is small fry for GS but what does it mean for the big boys in this field. See the article for an interesting read.

The $ has been much maligned throughout this rally, as we would expect. With it having broken through several 200 day MAVs (EURUSD, NZD, CAD. Well, just see DXY!) there has been a lot of talk of how the $ bear trend will continue. I disagree, well I am a $ bear, but not in the near term. I believe if Equities fall from these levels, and the market gets edgy, I think the $ will be the hiding place of choice. Remember after the Shock and Awe fed meeting where they announced full on QE and the $ took a pasting? A few days later when the risk aversion came back, $ was being bought again. Ok, it’s since been sold against everything but you get my point.

Lastly, I was inundated with Bloomergs this morn talking of very high volumes across Europe. Talk of 130% or 170% of 20 day average volumes adorned my monitors. A caveat however, these are not really volumes. It feels quiet out there and it is. Italian dividend season is upon us and if you exclude the div washes, volumes are running at about 80%.