A Non-Day...a.k.a. A Consolidation Day
On this unseasonably sunny and warm November NYC Friday, the market went down a little in the morning and then went up a little in the afternoon to close practically unchanged for the day. If one is bullish, this is practically music to one's ears, as the gains we've had this week have indeed been exceptional. As I wrote yesterday, if, heading into next week, the SPX was contained between the 1225-23 (where it's definitely short-term overbought) and the 1207-05 levels, we should count this as a victory for the bulls -- the ones who have been conditioned, time and time again, to buy the market in November for the traditional 4Q rally. Hurray, performance chasing wins again... for now i.e. :-)
One notable trade that I am currently thinking of putting on: going long Morgan Stanley (MWD) @ $52 against shorting Goldman Sachs (GS) @ $131. MWD is down a little over 5% YTD, while GS is up more than 25% at this point. While I am not arguing that GS is firing on all cylinders and is perhaps "the better blue-chip investment bank" (whatever that means!) , I do think that MWD is undervalued here, on almost any fundamental metric. Consequently, I don't agree with Merrill's Guy Moszkowski downgrade of the name today -- I feel he may be jumping the gun a bit prematurely, even more so since he only upgraded the stock a few months ago and MWD's chart has really been flat over that time. Give them more time! I reckon MWD will definitely turn things around on the trading side. GS is doing well, but not well enough to justify being worth more than MWD on a market capitalization basis, and I am not even going into the whole book value vs. P/E comparisons, because the GS premium (over MWD) has truly stretched its luck at this point, considering that some astute observers might actually claim that GS is, in essence, a massive glorified hedge fund (and is thus more exposed to the vagaries of inherently risky trading). There is a proper price for everything, and I am just saying that, over the next 24 months, MWD stock should outperform GS stock, so that the two names would come back in line. It's a bit like the Credit Suisse (CSGN VX) vs. UBS (UBSN VX) pair trade from early March of 2003 -- CSGN has since tripled in price, while UBSN has "only" doubled...
And with those happy thoughts, I leave you for the weekend! Go ManU (and that from an Arsenal fan!) -- crush the Chelski impostors!!
One notable trade that I am currently thinking of putting on: going long Morgan Stanley (MWD) @ $52 against shorting Goldman Sachs (GS) @ $131. MWD is down a little over 5% YTD, while GS is up more than 25% at this point. While I am not arguing that GS is firing on all cylinders and is perhaps "the better blue-chip investment bank" (whatever that means!) , I do think that MWD is undervalued here, on almost any fundamental metric. Consequently, I don't agree with Merrill's Guy Moszkowski downgrade of the name today -- I feel he may be jumping the gun a bit prematurely, even more so since he only upgraded the stock a few months ago and MWD's chart has really been flat over that time. Give them more time! I reckon MWD will definitely turn things around on the trading side. GS is doing well, but not well enough to justify being worth more than MWD on a market capitalization basis, and I am not even going into the whole book value vs. P/E comparisons, because the GS premium (over MWD) has truly stretched its luck at this point, considering that some astute observers might actually claim that GS is, in essence, a massive glorified hedge fund (and is thus more exposed to the vagaries of inherently risky trading). There is a proper price for everything, and I am just saying that, over the next 24 months, MWD stock should outperform GS stock, so that the two names would come back in line. It's a bit like the Credit Suisse (CSGN VX) vs. UBS (UBSN VX) pair trade from early March of 2003 -- CSGN has since tripled in price, while UBSN has "only" doubled...
And with those happy thoughts, I leave you for the weekend! Go ManU (and that from an Arsenal fan!) -- crush the Chelski impostors!!
posted by Ivan at 11/04/2005 07:03:00 PM
2 Comments:
Great blog
MWD has what is now an almost permanent discount to the group, this is not new. Also never short the better quality company, especially in a bull market for I-banks.
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