Quick Predictions: WM to be bought by WFC and other probabilities

Here's what I'm thinking:
WM: Will either go bankrupt (CDS has been trading as if it already is since last week) or get wrapped up on the cheap. I would say the latter is still slightly more likely, and I am calling out WFC as the most likely suitor in a deeply discounted all-stock deal. It's the only large regional that has fared well throughout this turmoil, and they could use WM's retail and small-biz base.
AIG: The "too big to fail" arguement doesn't float anymore with the taxpayers, and it's finally getting through to Washington. You can't open the floodgates and bail out every single large firm. Furthermore, AIG is in a position to sever a limb (their toxic Financial Services unit) to save their life, and they should do precisely that. All the financial executives have ruined themselves and their employees through the hubris of trying to remain an indepent going concern against all odds. Two words for those who are left standing: Stop Loss.
Fed Move: The market is pricing in a 25bps cut, and that's what I believe will happen. I would prefer the Fed holds tight, giving the markets the financial equivalent of a suppository, but I doubt Bernanke has the guts to bear the fallout. A 50bps cut, however, will deplete ammo that the Fed will very likely need should bigger problems surface. And they certainly will.

Things aren't looking good...

If all the massive financials' writedowns weren't enough we saw the SPX go under its 200-day MACD. I think tomorrow could be really bad, and don't think a good unemployment number is going to save you (actually the only thing that could is some big boys covering shorts or going long if their trigger was the 200 MACD). Get out of FXI, short the SPDRS (and the dollar) and hold on to your golden balls.

Three Horsemen of the Crapocalypse

I know it's been a while since I posted. Some of you were wondering if I got killed in the avalanche that started rolling with subprime and got bigger as it piled into credit, then equities and then the global macro markets. The Austrians were onto something, that's for sure. Rest assured, however, that I am alive and well - a tsunami of volatility can be a beautiful thing if you know how to surf it. Of course with so much free money being stuffed into the markets by funds liquidating their assets for pennies on the dollar (think 10 Amaranths and I'm John Arnold with a bigass fishing net) there has been no time left to pen witty banter on a blog. I got post ideas, though and will get to them when I have time. Meanwhile check out these three intraday charts that spell either doom, boom or opportunity depending on your positions:

VIX:
and SPX:
Treasuries (TYU7 Future):JPY
This poor otter was caught on the tracks of the Vega train today:

Don't worry little buddy, the markets will rebound ...just not this week. Once S&P breaks the 1400 floor more stop losses will get triggered (leading to a further Treasury and Yen rally as hedges and carry trades are unwound). More bodies of failed PMs will surface (but we all know Portfolio Managers never die - they just go to hell and regroup [unless the FERC gets all pesty]).

Update: Putin's Hardball Felt on RTS

Russia's main equity index, RTS, dropped 6.7% today as Putin said that oil production may need to be scaled down as it considers diverting oil from Belarus completely. If this was to happen:

• All Russian oil companies will have to cut production because they don’t have enough storage capacity (Lukoil is down 9% today because of this).
• Belarus would be nearly bankrupted and have no energy and its government would be lynched.
• All countries serviced by the Druzhba pipeline would be screwed as well since Russia has no immediate way to supply them.
• After the new pipeline is built there’s no telling if Europe would still want anything to do with Russia.

No Boyd LBO

When Harrah's, MGM and finally Station casinos got buyout offers Boyd Casinos (BYD) spiked 15% on speculation that it would be next. I thought it was unlikely and now, after rangebound trading for some time the MACD is crossing down and the stock has begun to fall. Moreover the CDS has tightened up - not a sign of a likely LBO.

Strategy: Short @ market, put an order to cover if it goes up to 47, or buy a call. Otherwise if it falls then cover after the drop, which should be at $42 or below.

CBS LBO Arb

There are rumors in the bond market that CBS may get bought out. The bonds are already showing this, but the equity hasn’t been affected yet, so it's time to act.

This is CBS’ Credit Default Swap (CDS) curve. It widened over 25% yesterday - which means the bond market perceives a 25% increase in chance of default. This can occur for several reasons, one of them being when a company is about to undergo a leveraged buyout as the buyback of equity is financed with high-yield, less creditworthy “junk” bonds. Given that there have been no other credit-related rumors I suspect it’s an LBO signal.

Now looking at the equity we see that it has been very strong in November and the trend is continuing. The lower graph shows that the MACD just crossed up over the signal. What this means is that there’s positive momentum on the equity that should continue. Nevertheless we haven’t seen a jump – perhaps because CBS investors are mostly cautious institutionals and want to wait to buy before there is a more confirmed rumor (or they may know something I don’t). In either case I‘d still buy at $32 as your risk/return is positively skewed – CBS won’t suddenly fall 20% like some penny stock as it is too big, but if there’s a buyout announced the equity should go up about 10-15%%. Just make sure to have a trailing stop of about 5% and you will be safe. Buy some out of money puts if you want insurance.

I called it! Shell Offers to Cede Control. Of Sakhalin-2 to Gazprom

I’ve been saying that this would happen for several months now. It should have been obvious from Gazprom's actions. Why else would they have been building pipelines without devloping new fields and reserves? Shell has finally buckled as its kneecaps have been bashed by the mighty hammer and its head cleanly cut off by the sickle of Kremlin/Gazprom/Putin/Mafia. Now Gazprom can take a gargantuan new nearly finished field and get all the capacity it needs to deliver to China, Europe and maybe even its own starving people. Nobody can stop the behemoth, not until 2008 when Putin steps down, anyways.

Shell Offers to Cede Control. Of Sakhalin-2 to Gazprom
By GUY CHAZAN and GREG WALTERSDecember 11, 2006 10:18 a.m.
Royal Dutch Shell PLC, succumbing to months of pressure from the Russian government, has proposed ceding control of the $20 billion Sakhalin-2 project to Russia's state-run gas monopoly, OAO Gazprom, an official close to the situation said.
The move shows Shell scrambling to rescue a project that has hit numerous roadblocks in recent months, including threats by Russian officials to withdraw a key permit over alleged environmental violations.
The pressure was seen as reflecting Russian anger at the cost overruns at the project, the biggest single foreign investment in Russia, and comes amid intensifying efforts by the Kremlin to dominate the country's oil and gas sector.
Gazprom said Shell Chief Executive Jeroen van der Veer met Gazprom CEO Alexei Miller and Russian Energy Minister Viktor Khristenko in Moscow last Friday to discuss Sakhalin-2, and that Shell had put forward new proposals on the project to Gazprom. Neither company would give details of the proposals. A spokeswoman for the Energy Minister declined to comment.
Mr. Khristenko will hold a press conference Tuesday in Moscow, the ministry said, during which he will answer questions about Sakhalin-2.
Gazprom and Shell reached an agreement in principle in 2005 that Gazprom would take a 25% stake in Sakhalin Energy, which is 55% controlled by Shell. Gazprom had since publicly denied it was seeking a larger stake in the company. Shortly after the Gazprom and Shell deal was reached last year, Sakhalin Energy announced its projected costs would nearly double for Sakhalin-2, prompting Gazprom to say it couldn't make a final commitment on entering Sakhalin-2 until the cost of the project was confirmed.
Sakhalin-2, said by Sakhalin Energy to be the world's largest integrated oil and gas project, is developing oil and natural gas reserves off the coast of Sakhalin Island in Russia's Pacific Coast north of Japan.Japanese partners Mitsui & Co. Ltd. and Mitsubishi Corp. own 25% and 20% of Sakhalin Energy, respectively.

TRLG Update: Strong Buy

Jeff Lubell States the Obvious and Buckley outlines growth strategy.

This article is fairly on-point. A couple points I disagree with, however:
1. UARM is doing better because it is a brand that most traders know and nobody has doubts about people buying sweat-wicking sportswear, whereas they always do about any premium fashion. I don't think going public through a reverse merger, as the Routers article stated, has an impact on TRLG's current valuation, especially since it became NASDAQ listed over a year ago. They need to face the facts - right now the market doesn't get you, it hasn't got you since you've been public so go and get bought with a strict agreement allowing you to continue operations with the same management team, get a nice capital infusion from the buyer and exit with a true IPO in a couple years if you feel the time is right.

2. Surfwear - This market is cornered right now, and there are actually plenty of high-end $60 -100 boardshorts out there. TRLG shouldn't expand that far, rather they should become the new, more premium, Deisel.

All that being said - these guys are going to have more good news. Hold them tight, and buy at anything below 20.

StockTips: TRLG

Those who know me also know about how fervent of a True Religion supporter I've been. The company has been good to me, with over 85% in realied returns. Here is why TRLG is especially sexy: the market doesn't get it. Look at all the street articles - most question why people would buy a pair of $200+ jeans. Fortunately, I've had enough experience in fashion to know that you can't put a price on sexy, and TRLG, like Justin Timberlake, is bringing SexyBack. True Religion is premium denim's golden calf and isn't going away anytime soon based on that alone.

Still critics chirp - but aren't premium jeans just a fad? Aren't all denim firms doomed to the fate of Jordache? Certainly kids will be rocking jeans for all time, but say that all of a sudden distressed denim goes the way of the dodo. Is TRLG doomed? Not at all.

Enter the firm's new President: Mike Buckley, the man who took Diesel and transformed it from a mediocre denim designer into a full-service "lifestyle brand" with stores all over the world. He's doing the exact same thing to True Religion with the introduction of a more diversified product range and retail stores in all the trendiest spots, with more to come. The brand now has ever increasing exposure and market share.

This isn’t being reflected in the stock price, however, so TRLG has finally publicly announced that they are looking for a buyer, and when the almighty Goldman is willing to represent them you better believe the deal will go through with a good premium.

So what should you do to take advantage of TRLG? Here are two simple strategies:

1. Buy and hold – enter anywhere below 19 and you will see positive returns. The firm won’t sell for anything below 24, and my guess is closer to 28 – the only question is when and to whom. Obviously a strategic buyer will bring the premium up even higher. Otherwise, a financial buyer is a likely candidate. I pitched the idea to Mr. Kravis in January, and I sincerely hope he takes it to heart (and if he does I hope there’s a commission for me in the form of a job offer from KKR). Bear Stearns’ merchant banking group owns Seven Jeans and a few other smaller apparel firms, so there could certainly be consolidation if they were to add TRLG into the mix.
2. Long + SAR – notice that the stock tends to go up, then back down. This is because of all the shorts on TRLG that always bite whenever it goes past 20. Use this to your advantage. Enter gradually from 18 down then ride it up to 20. Now stop and reverse into a short and ride the stock back down to about 17 before covering and going to long. TRLG tends to float between 16 and 21, so don’t get too greedy and you will see excellent returns. This is the strategy I’ve been using and it has worked wonderfully. You just need confidence in you strategy and patience.

Update: TRLG just announced they appointment of Zihaad Wells as the new Design Director. This guy created Levi's Red and Vintage brands. He is perfect for TRLG in terms of aesthetic direction: clean and sexy with a hint of flair and tasteful accents. Note that this happened just as the stock was about to start heading down. My guess is that the shorts will be weary, but not too much. In any case since banking means I can't day-trade I am backing out of my short before market open tomorrow and will re-purchase the stock when I see it has leveled/reversed.