Email – #422
On Wall Street, uncertainty is the killer of all hopes and dreams. This year, that uncertainty factor is the highest it has been in a decade. There are signs that BIG winners will emerge, given time and the right outcomes.
But what Wall Street wants is not always what Main Street wants. Wall Street wants low taxes and low government spending. It will vote for McCain. Main Street is in a quandary. It wants lower taxes too, but it also wants change. The Democrat party is doing its best to implode before the elections with the two candidates at each other’s throats on a daily basis. If the Dems win, then all bets are off. Taxes will go up and government spending will increase. With the Republican president, taxes will not increase and government spending will likely not decrease much either. So taxes are where it stands. And market players that stand to benefit from a Republican presidency are quite clear – the specialty finance industry.
The subprime crisis, which has led to a full-blown credit contraction, is also a major negative, even for Wall Street and Main Street. But, there will be winners. Those winners are the companies that figure out how to raise money and buy lots of assets on the cheap – fire sale prices. They have to be willing to hold on to those assets, have the wherewithal to move forward on other fronts, and still provide shareholder value. Again, the top players are in the specialty finance industry.
We are going to bet on a company that stands to benefit the most from the current environment and a potential Republican victory. If they lose, we will sell. That being said, we are going to take a position in the Blackstone Group (NYSE: BX). I like to call it the Masters of Money, the people who always seem to be in the right place at the right time. It has the deep pockets to take advantage of opportunities at the drop of a hat; it can convince global superpowers to back them and it knows how to get on the inside track better than anyone else.
BX has suffered since the IPO was down more than 50%, as issues surrounding the credit meltdown, tax changes and business slowdown in general have forced investors to sell everything. This hedge fund manager responded by maintaining its dividend and buying back its shares. All the while it has been raising funds to buy the very distressed assets that it likely helped to create.
The play on BX is two-fold. First, it is a play on a Republican win. The Democrats vow to raise taxes on specialty finance companies is a deal-breaker for this company. Second, it is a play on a financial turnaround for a company that knows the business inside and out.
Here is the play:
Buy the Blackstone group January 2010 $25 LEAP Call option (KJL-AE), currently trading for $2.65. Do not pay more than $2.80 for this option. If the Republicans keep the presidency, these options should soar in value – a potential double or triple within a year. If not, we will likely lose money on this play.
Current Portfoli
Company / Option: Blackstone Group Jan. 2010 $25 calls
Option Symbol: KJL AE
Current Price: $2.65
Comments: Buy. Do not pay more than $2.80.
Company / Option: Unisys Jan. 2010 $5 calls
Option Symbol: WUI AA
Current Price: $1.45
Comments: Hold
Company / Option: Pfizer Jan. 2010 $25 calls
Option Symbol: WPE AE
Current Price: $1.00
Comments: Hold
Company / Option: Bank of America Jan. 2010 $55 calls
Option Symbol: WBA AK
Current Price: $1.38
Comments: Hold
Company / Option: Fifth Third Bancorp Jan. 2010 $30 calls
Option Symbol: YJF AF
Current Price: $1.55
Comments: Hold
Company / Option: Sun Microsystems Jan. 2009 $5 calls
Option Symbol: XOG AA
Current Price: $0.15
Comments: Hold
Company / Option: Mylan Labs Jan. 2010 $20 calls
Option Symbol: WYQ AD
Current Price: $1.20
Comments: Hold
Company / Option: Cirrus Logic Jan. 2009 $10 calls
Option Symbol: VUR AB
Current Price: $0.20
Comments: Hold
Company / Option: Coeur D’Alene Jan. 2009 $2.50
Option Symbol: ZYB AZ
Current Price: $1.50
Comments: Hold
Company / Option: General Electric – bull spread
Jan. 2010 $35 calls (bought)
Jan. 2010 $45 calls (sold)
Option Symbol: WGE AG
Option Symbol: WGE AI
Current Price: $3.20
Current Price: $1.05
Comments: Hold
Company / Option: Microsoft – bull spread
Jan. 2009 $32.50 call(bought)
Jan. 2009 $40 call (sold)
Option Symbol: VMF AZ
Option Symbol: VMF AH
Current Price: $1.51
Current Price: $0.25
Comments: Hold
Company / Option: Tenet Healthcare – bull spread
Jan. 2010 $5 call (bought)
Jan. 2009 $7.50 call (sold)
Option Symbol: YTX AA
Option Symbol: ONZ AU
Current Price: $1.85
Current Price: $0.50
Comments: Hold