The Best of Kass
Among his posts this past week, Kass explained why investors should get behind the wheel with Ford and why the media are inflating fears about the fiscal cliff.
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Ford Is Still a Katch
Originally published on Friday, Nov. 30 at 1:21 p.m. EST.
I have always thought that the bond market crowd is smarter than the stock market crowd.
That said, it is often helpful to watch the price of individual company credit default swaps as a potential precursor to a move (higher or lower) in a company share price.
As most are aware, a credit default swap (invented by JPMorgan's Blythe Masters 18 years ago) is a financial swap agreement that the seller of the instrument will compensate the buyer in the event of a loan default or other credit event. The buyer of the credit default swap makes a series of payments (the "fee" or "spread") to the seller and in exchange receives a payoff if the loan defaults.
The charts below display Ford's (F) five-year credit default swap spreads against Ford's equity price.
These charts demonstrate that:
- Ford's five-year credit default swap spreads are the lowest in more than two years; and
- the price performance in Ford's shares are lagging the credit improvement.
I expect the credit ratings agencies to upgrade Ford's debt rating by two notches in the months ahead -- the improvement in credit default swaps indicate they are getting late to this party.
Ford is one of my largest long equity holdings and still a Kass Katch.
I see less than $1 a share of risk (to $10.50 a share) but more than $3 a share of upside (to $14.50 a share).
I like these odds.
I have also bought calls in Ford recently (January 11s and 12.5s and Feb 10s).
At the time of publication, Kass was long F common stock and calls .
Don't Believe the Hype
Originally published on Friday, Nov. 30 at 12:00 p.m. EST.
"Disaster has a way of not happening."
-- Byron Wien, vice chairman of Blackstone Advisory Partners
The media's obsession with fiscal cliff fears is comparable to Carrie Mathison's preoccupation with Abu Nazir and Nicholas Brody on Homeland.
In a recent series of columns on Real Money Pro I opined that not only are the fiscal cliff fears overblown but so are the economic, political, geopolitical and tax fears overblown. Nevertheless, the earnings cliff fears (which will ultimately limit Mr. Market's upside) are not overblown.