What’s going on?
Alright, enough with the emotions — lets talk about what’s been going on in the portfolio and what I have learned. To summarize generally; everything has come undone. But I was 80%+ cash so I am fine, +1 for sticking to principles and not chasing an expensive market! I am down 5.3% inception to date, which is actually great, but I am losing money in a once in a decade opportunity for trading. Alright, lets break down the problems, bucket by bucket.
Lets start with merger arb, where virtually all of my deal spreads have drastically widened (one may have also blown up completely):
Something about CDOR’s spread is telling me that the deal is not going to happen. It keeps getting pushed by 5 days — probably a bad sign. Small allocation though, but the loss is going to hurt the book’s return. The whole space looked like it was falling apart yesterday. Even after recovering plenty today, spreads are still much wider than just 10 days ago. Unfortunately I am not comfortable allocating any more to this space. Things are just far too uncertain.
Up next is my JC Penney bond. Well, have a look:
Even though the graph shows $79, I would probably have to accept in the $60 range to get rid of them. The bond markets are broken — and I’m no credit expert. There seems to be deep liquidity issues, where no one can sell. As no one has the balance sheet to sit on these bonds while they keep getting marked down and down. This is at least partially why there have been calls for the Fed to start purchasing corporate bonds, and even munis. Is the Fed going to wait and see to find out? Are ETFs to blame?
So I am going to hold the JCP bond, because I think there is still a non-zero chance that they get paid off in June. I even think there is some chance JCP could find its way into some bailout money! Obviously the store closures are going to ask serious questions of the business — but will it have to restructure before June?
Let’s move onto gold, or more specifically gold miners. I’m going to write more on these as soon as I know what the f*ck is going on:
Something is severely broken with Gold miners; the ETFs are all over the place, the single name gold miners are all over the place — its a mess. I wish I could easily participate in the moves, but for now I am going to view my gold miners as medium term macro plays on QE and stimulus. I exited my NEM call option at a small gain (I made money on the vol). (Also, just have a look at the vol on GDXJ though:)
Speaking of vol, I’ve sold some too! I bought a 1% position in CTL, and am selling covered calls on it at 70 vol. 13%ish OTM calls, and getting buy-the-dip exposure. CTL is a cable company, its going to be fine, I bought it at about 33% below its high; for $9.67. I sold an $11 April call for $0.50, I will keep doing this until it gets called away. I hope to do more call writing, the principled thing to do: I get to buy high quality names, at a low price and collect a high vol on them. (Only problem is I need to buy 100 shares worth to write one contract, that can become tricky when sizing the underlier, hence why I chose CTL at under $10. This is one of my few winners right now.
Onto the next losers: BXMT and JPS. Oh God — oh why. I am down about 50% on BXMT, originally a 2% position, and am down about 30% on JPS, a 5.5% investment. These are very painful. BXMT, I am seat-belted into for now, due to co-ownership. Anything involved in housing or mortgages is getting crushed. This should come back a bit, but this may become a tax loss harvest operation at some point. JPS continues to suffer from the pains I previously wrote about; a sometimes 25% discount to NAV, and credit spreads getting absolutely CRUSHED. The banks are going to be fine, I just need to hang in there. (and stopping buying more).
I played a spinoff, and kinda fumbled IR becoming IR and TT. I am down over 30% on these. I didn’t focus and held onto the crap leftover IR and didn’t cash my gains in newly freed TT before the market crapped out. (Although this makes me feel better about getting out of BILL $20 ago LOL!).
And that’s pretty much it.
Oh and my 5% of the portfolio SPY put, but lets talk about that next week, along with my imaginary CL call options. (Man WTF is going on in oil too, just too much to keep track of).
