Trading upate #16; 5 Mar 2008 … point, set, match

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But not in my favour …

Thornburg Mortgage may now very well go bankrupt unless it gets a bail-out.  This evening after the close, it announced that is was officially in default to J.P. Morgan to the extent of $28M, triggering a whole bunch of other covenants in it’s re-purchase financing agreements.  It closed today at $3.40, but after the news, closed down at $2.16 in after-hours trading.

I spend a lot of time and effort weeding out stocks with debt, and focusing on stocks with cash.  And the ONE stock where I make the exception based on my perception of strong management, insider-buying, ya-da ya-da ya-da, is the one that goes bust.  This is how the stock market gives you an education.

Thornburg is fairly big news, and will probably blow up the market for another big down day tomorrow unless there is some new counter-vailing press release announcing a bail-out.  More worrisome is this general cascading cycle of heavy demand to sell CDO’s, at heavily discounted prices where there is selling and or quality downgrades by credit agencies, mark-to-market devaluations of inventories, margin calls, fire-sale liquidation of margin collateral, adding to the heavy selling pressure, which goes right back to more write-downs – and so on.  At what point does this spiral out of control and cause the real economy to face-plant?

Yesterday’s news about the municipal auction markets basically failing (because market-makers refusing to step up and take on any new inventory), really triggered some alarm bells.  We’re talking cities, hospitals, and schools that either can’t raise new money, or have to pay interest rates multiples higher than they were just a few weeks ago.  Any entities depending on debt financing will start laying off people in droves if they can’t get the financing.  That’s when it’s going to hit.  Honestly, I have no idea if we’re there yet, but I’ve got this nasty feeling in the pit of my stomach that this thing may not be under control, or even controllable at this point.

Spidey-senses not happy!

But life goes on and there were some trades.

JESSE’S CORNER
Method and signals described under “My Portfolio” in the blogroll column on the right.

#27 FOREST LABS (NYSE:FRX)  Open +1.9%
28JAN08    B $38.89 Bought back full position previously sold at $39.50 

#28 HORIZONS BETAPRO FINANCIALS BULL+ ETF (TSX:HFU) 
28JAN08 B $15.46  60% position.  Expected rally in financials.
05MAR08 S $14.20  Stop-loss 10.7%

#29 FORMFACTOR (NASDAQ: FORM)  Open -2.5%
05MAR08 B $17.51  Full Position.  Strong balance sheet – 65% of stock price is cash.

HFU just wasn’t happening and it was trading around the mental stop-loss price.  Based on yesterday’s analysis I found Formfactor to be more compelling.  Doing some “value” bottom-fishing here that I may yet come to regret.

REAP (RELATIONAL EQUITY ALLOCATION PROGRAM)
Methodology fully described under “My Portfolio” in the blogroll column on the right.

GROUP#4
Sold 30% of Sun Hydraulics  (SNHY) @ $26.30
Bought Merck (MRK) @ $42.92

Sun Hydraulics had a great earnings report yesterday, and rose sufficiently to trigger a switch with Merck, which had drifted lower.  The latter has a 3.5% dividend at this price, so that’s increasing the average portfolio yield by a little bit.

Cheers,
Allocator
a.k.a George Parkanyi
gparkanyi@hotmail.com

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