Tuesday, September 3, 2013
It does not take a genius to assess that the QE taper may increase the yield curve. But markets do not move in a straight line, and often relapse. Thus the movement will be jerky, and pronounced. But with that said, the net effect is a high probability of a trend toward higher rates over a 12 month period. This blog believes obtaining a leveraged return on anticipating a small upward movement is the best way to gain from the "untwisting" of long term rates when the bond purchases subside. The author is long JAN 2015 $100 TLT Puts and short JAN 2015 $95 TLT Puts for a net debit of $2.4.
Even five years after the financial meltdown, investors need a forward view of the bond insurers, especially Ambac. The "new" Ambac earned $58m in premiums this quarter (est. $200m annual) and holds a market valuation of $1b. Ambac also has lawsuits outstanding against the major banks that were settled with competitor MBIA for $1.6b. It is risky to speculate on the legal system, but Ambac lawsuit should yield a larger settlement than the MBIA due to the proportional size of the damages to Ambac. There is deep value in this company, and "somewhat" risky legal event upside also. That makes looking back at the old, dead predecessor distracting from the green shoots that investors should take hold of. The author is long AMBC at $22.50.