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Bud's Poem Page Katie's Coast2Coast Blog Katie's West Coast Blog Katie's East Coast Blog |
31 March 2016Kathy's mother died on Monday and we are heading to Chicago for the Memorial service. We did nothing in accounts this week and may be on the sidelines for a while. Happily accounts are back to even or a bit higher for the year after a wild three month ride that none of us enjoyed. For those who wish to contact Kathy her address is Kathy Cannova Catherine T. Pinto nee Weir, age 97 beloved wife of the late Leonard T. Pinto. Loving mother of Kathleen (Vince) Cannova and Thomas M. Pinto. Dear sister of The late Mary V. Johnson, Margaret Kloess and John Weir. Family and friends will meet Saturday for an 11:30am funeral Mass at St. Alexander Church 7025 W 126th St, Palos Heights. Interment private. Please omit flowers. Funeral arrangements were entrusted to The Original Lamb Family Funeral & Cremation Service, Rose Lamb, Director. For information call 708-710-9549. Kay was able to live at home for entire life smoking her two packs of cigarettes a day because of Kathy, Tom and Vince's wonderful care. RIP. 24 March 2016We are in the middle of an ice storm with generator power as we write this missive. March is always full of surprises and March markets have certainly followed this trend. With supreme luck most of our accounts are even or up for the year and we celebrated this fact with relief and a selling that leaves us with half positions in three issues: Marathon Oil, Marathon Petroleum and Fitbit. The first three months of this year have been a roller coaster for us and we feel the need to get off for a while and catch our breath and reassess our market outlook. The terror attacks, election brouhahas, big boy and girl computer games and not wishing to look a gift bear in the mouth have encouraged us to seek the sidelines for now. Oil has rallied 50% in the last month and is due for consolidation; the markets are up 12% in the same time period; and so caution is warranted. And we want a few weeks away from worry. Happy Purim!! Happy Easter!! Happy Spring!! ***** 18 March 2016The markets have been kind to us again this week. The DJIA and S&P 500 are back in positive territory for the year and so are most of our accounts. It was a less than fun journey to get here but all's well that ends well—at least for now. On Monday we reduced positions again after spending the weekend cogitating. At the nadir of account values in late February we vowed that when we go back to close to even we would return to our usual cash position. We added one issue during the week. Pepco (formerly Potomac Electric Power) has an acquisition agreement from Exelon (formerly Commonwealth Edison). Way back in 2014 Exelon agreed to buy Pepco for $27.25 a share. Various regulatory hurdles have delayed the merger for two years and recently the final two regulatory bodies in Washington DC refused to give their approvals. On this news the share price dropped $4.50. The shares yield almost 5% at current price and if the two companies can convince the DC regulators to approve the merger the shares will immediately be acquired at a $4 profit for us. If not the shares will probably drop $2 initially but then will return to the present level because of their dividend yield - or so we think (more on this merger below). We also added to Marathon Petroleum. This purchase gives us exposure in the refining and distribution end of oil/gasoline and the shares are priced at half their 2015 value. We currently own- in relatively equal amounts GM warrants; Ascena Retail (Lane Bryant, Justice, Ann Taylor); Alcoa; Symantec (Norton antivirus); and Fitbit. In oils we own the Oil Exploration ETF (XOP); Marathon Oil (exploration); Devon Energy (exploration) and Marathon Petroleum (refining and distribution). We traded a small exposure in Chipotle Mexican Grill last month for a scratch but the shares are selling off again and we may be a purchaser if the price drops under $400. CMG is currently at $450. Last year's high was $725. Our grandson and his teammates swear by CMG. Happy Spring!! We present below comments by others. Make sure to make it to the last comment where the WSJ suggests that oil in storage has been overstated by 800,000 barrels a day. When the oversupply is thought to be between 1 million and 2 million barrels a day subtracting 800,000 barrels from that number makes a difference. Remember the big boys and girls trade numbers and ideas - not facts. ***** No tag days needed: Here's What Big Bank CEOs Have Made since the Financial Crisis ***** Exelon/PEPCO Find Out How Tough D.C. Can Be A deal to make a mega-utility founders on local power struggles. Chicago-based energy company Exelon came to Washington in 2014 with a plan to create America's biggest utility by acquiring Pepco Holdings, which provides power to the District of Columbia and neighboring parts of Maryland, as well as areas of Delaware and New Jersey. But the $6.8 billion takeover has hit an unexpected obstacle: a local fight over who gets to control the $78 million Exelon and Pepco have offered to hand over as a deal sweetener. The dispute between Mayor Muriel Bowser, a Democrat, and the local utilities regulator, the District of Columbia Public Service Commission, could kill the deal. On March 7, Exelon, the biggest U.S. nuclear energy operator, and Pepco introduced a last-ditch proposal that included a plan for meeting environmental targets and freezing residential rates until 2019. The companies asked for a final decision by April 7. Exelon Chief Executive Officer Chris Crane wants to add Pepco's steady, regulated earnings to offset losses at some of his company's nuclear power plants. "We think this deal is the right deal at the right time for Exelon," he said when he announced the merger in 2014. Exelon and Pepco won approval from Delaware and New Jersey, and in January they overcame a legal challenge from Maryland officials, leaving the District the last remaining hurdle. ***** Recommendations for Marathon Petroleum Around 83% of Wall Street analysts rate Marathon Petroleum (MPC) as a "buy," and ~17% rate it as a "hold." There is no "sell" rating on the stock. The median price target on MPC is $56.5, ~63% higher than its March 1 closing price of $34.63. Marathon Petroleum This top refiner rolled over after fourth-quarter earnings and may be offering an outstanding entry point. Marathon Petroleum Corp. (NYSE: MPC) has a diversified business that operates through Refining & Marketing, Speedway, and Pipeline Transportation segments. The company owns and operates seven refineries in the Gulf Coast and Midwest regions of the United States, which refine crude oil and other feedstocks, and it distributes refined products through barges, terminals and trucks, as well as purchases ethanol and refined products for resale. While acknowledging that the company's margins may have compressed some, many on Wall Street also expect strong revenue contribution from the assets acquired from Hess, and last year the company converted almost all the Hess stations to the company's Speedway brand. For the fourth quarter, Marathon Petroleum's posted net income of $187 million, which fell by 77% from the prior years numbers. This was due in part to declines in the operating incomes of its refining and Speedway segments and partly offset by a rise in income from its midstream segment. The company also took a combined charge of $370 million in the quarter that came from the lower market inventory valuation levied on its refining and Speedway segments. Marathon shareholders receive a 3.5% dividend. Deutsche Bank has a $64 price target. The consensus target is lower at $55.93. Shares closed most recently at $36.63. ***** Fitbit on the Rise As Citron Comes Out Positive Shares of Fitbit Inc. hit a day's high on Tuesday of $14.52 after short-seller Andrew Left's positive comments on the company. "Tough to short here because wearables are for real with a big total addressable market. It is a compelling product," Citron Research's Andrew Left said... Wearables The wearables market is turning hot as more and more consumers becoming fitness conscious and buying fitness tracking devices. A recent data from IDC shows that vendors shipped a total of 27.4 million wearable devices during the holiday quarter, besting last year's levels by 126.9 percent. For the full year, vendors shipped a total of 78.1 million units, up 171.6 percent over 2014. The market is expected to grow at 28 percent annual rate for the five years ending in 2019. In this growing market, Fitbit remains market leader and outpaced rivals Apple Inc. Apple Watch captured 15 percent market share in the fourth quarter, next only to Fitbit, which holds a market share of 29.5 percent. Fitbit sold 8.1 million fitness trackers in the fourth quarter, an impressive growth of 72 percent from the third quarter. Apple sold 4.1 million devices in the same period. Recent Analyst Dougherty's Charles Anderson, who reiterated a Neutral rating on Fitbit, recently said "we can say with confidence that the Fitbit Blaze looks to be exceeding expectations out of the gate." Anderson also noted that Fitbit Blaze had received a "staggeringly" high number of positive reviews compared to the company's earlier releases, with 231 "verified" reviews on Amazon. Of these, 83 percent had rated Blaze with 4 or 5 stars. Therefore, the analyst believes that there is potential for the stock to outperform in the near term. However, Anderson would prefer to get more constructive is there was evidence of these trends continuing and the launch of Fitbit Alta was received positively. Shares of Fitbit were up 5 percent at $14.23. They were down 52 percent this year. ***** Crude Mystery: Where Did 800,000 Barrels of Oil Go? Tally of unaccounted-for oil hit highest level in 17 years in 2015; oil data is 'an imperfect science' There is mystery at the heart of the oversupplied global oil market: missing barrels of crude. Last year, there were 800,000 barrels of oil a day unaccounted for by the International Energy Agency, the energy monitor that puts together data on crude supply and demand. Where these barrels ended up, or if they even existed, is key to an oil market that remains under pressure from the glut in crude. Some analysts say the barrels may be in China. Others believe the barrels were created by flawed accounting and they don't actually exist. If they don't exist, then the oversupply that has driven crude prices to decade lows could be much smaller than estimated and prices could rebound faster. Whatever the answer, the discrepancy underscores how oil prices flip around based on data that investors are often unsure of. Barrels have gone missing before, but last year the tally of unaccounted-for oil grew to its highest level in 17 years. At a time when the issue of oversupply dominates the oil industry, this matters. "If the market is tighter than assumed due to the missing barrels, prices could spike quicker," said David Pursell, managing director at energy-focused investment bank Tudor, Pickering, Holt & Co. Read more: http://www.wsj.com/articles/crude-mystery-where-did-800-000-barrels-of-oil-go-1458207004 ***** 11 March 2016This week markets were kind to our accounts and most have recovered to close to or above year end values. In the process we have raised cash to more normal ( for us) levels while maintaining an outsized position in oil stocks. We added Marathon Petroleum (Marathon Petroleum Corporation, together with its subsidiaries, engages in refining, marketing, retailing, and transporting petroleum products primarily in the United States. It operates through three segments: Refining & Marketing, Speedway, and Midstream. The company refines crude oil and other feed stocks at its seven refineries in the Gulf Coast and Midwest regions of the United States; and purchases ethanol and refined products for resale. Its refined products include gasoline, distillates, propane, feed stocks and special products, heavy fuel oil, and asphalt. The company also sells transportation fuels and convenience products in the retail market through Speedway convenience stores; and transports crude oil and other feed stocks to its refineries and other locations.) to some accounts. We now own the two parts of the old Marathon that split apart several year ago. We also purchased more shares of Fitbit (on the advice of our granddaughter) from funds raised from selling Morgan Stanley for a scratch. We also sold BankAmerica, Micron and CSX for plus scratches and Hain, United Natural Foods and Juniper for decent gains. With proceeds from Juniper we repurchased Symantec. Symantec is now a pure security play having sold its storage division. (See below). For now we are resting and enjoying the spring weather. ***** Symantec Corp. SYMC and Silver Lake wrapped up the deal they inked on Feb 4, 2016, whereby the latter invested $500 million in Symantec to create an advanced security platform. Symantec further revealed that, in connection with this investment it had raised its total capital return program to $5.5 billion, which will be completed by the end of fiscal 2017. The company plans to accomplish this by paying a special dividend of $4.00 per share totaling $2.7 billion, with the remaining $2.3 billion being distributed through the repurchase of its shares. Furthermore, Ken Hao — currently the managing partner of Silver Lake — will be appointed as a member of Symantec's board of directors. The transition will take effect immediately. With this, Symantec board will now consist of ten directors. According to Symantec president and CEO — Michael A. Brown — "We believe Ken's deep insights in the technology industry will benefit Symantec and our shareholders, and we are pleased to welcome him to the board." Symantec has a lot to worry about at the moment with the persistent weakness in PC sales hurting its core Norton Anti-virus software business. Other than the intensifying competition, this business has been dealt a severe blow by the increased usage of smartphones and tablets. We believe that the deal will provide Symantec with the much-needed funds to continue expanding its product portfolio and presence in the fast-growing markets. Separately, on Jan 29, 2016 the company closed the sale of its Veritas business for $7.4 billion to Carlyle Group CG. Veritas offers a wide range of data backup and recovery, and storage management products to nearly 75% of the Fortune 500 companies. We believe that the divestment is likely to streamline Symantec's operations and maximize shareholders' value. Renewed focus on the core business can also revive its operational performance. Last Words In third-quarter fiscal 2016, the company provided an encouraging guidance for the fourth quarter. The company expects revenues in the range of $885 to $915 million. The Zacks Consensus Estimate is pegged at $902 million. Management expects non-GAAP earnings per share between 24 cents and 27 cents. The Zacks Consensus Estimate stands at 20 cents per share. The completion of the transaction should enable the company to concentrate more on its core business, which should translate into new products and a more focused sales team. However, smaller companies like Kaspersky are consistently launching comparable products. These, along with competition from Intel INTC and Microsoft MSFT, remain headwinds. http://finance.yahoo.com/news/symantec-corp-wraps-500-million-212009528.html ***** Symantec Corp. shares jumped Friday after RBC Capital Markets Corp. upgraded the company to buy from neutral amid growing demand for security products. The stock rose 3.7 percent to $18.35 at the market open in New York. The shares had fallen 25 percent in the past year. Symantec, which makes cybersecurity software, is a "value stock that doesn't have to get a lot right for shares to move higher," RBC analyst Matthew Hedberg wrote in a note. RBC's price target of $23 is unchanged. Low investor expectations, the opportunity to cross-sell new products and automatic renewals that may slow declines in the consumer security business are among the reasons for the upgrade, according to the note. The demand for security products is rising as large companies seek to protect data on more devices, Hedberg wrote. Mountain View, California-based Symantec's new Advanced Threat Protection software provides the company with its biggest revenue opportunity this year and next, Chief Financial Officer Thomas Seifert said in an interview in Berlin Friday. The company is on the lookout for acquisitions to gain additional technology and accelerate its unified security strategy, Seifert said. "With what seems like hundreds of vendors focused on end-point security, we think Symantec has a seat at the table with a large customer base and could become a consolidation play as Intel/McAfee struggles," Hedberg wrote in the note. 4 March 2016After this week's rally it's safe for clients to look at their accounts. We aren't back to even for the year yet but no one will have a heart attack. Onward and upward—☺☺ BLS reports 242,000 new jobs created in February. U3 jobless rate stays at 4.9%. U6 falls to 9.7%. Our accounts had a strong week as oil issues recovered from near death prices/sentiment to still depressed but maybe they'll survive levels and maybe OK to own sentiment. Some consolidation may be necessary before oil issues move higher and so we aren't ringing the all is well bell just yet but we are more relaxed about our large oil exposure. Markets were down Monday and up big on Tuesday. Strong rallies on Tuesdays are the best from a technical view. Reasons given for Tuesdays rally were that China's manufacturing numbers were so bad that the government is going to have to create a yoooge stimulus. Another reason proffered was that the two most hawkish Fed governors gave dovish speeches about maybe having to hold off on raising rates since world economies remain weak. Our thought is that the rally was due to short covering and that stocks are cheap and the economy is OK. Those reasons are too simple and practical for a guru to give when asked to comment by the media Wednesday Thursday and Friday were ho hum higher days. Four up days in a row; nirvana is near. During the week we took profits in Juniper and Hewlett Packard Enterprises which we bought with Fifth Third sale money early in the week. We also repurchased Symantec. We added more shares of UNFI and HAIN when they traded lower on Monday. We added CSX to some accounts and sold our Large Domestic Oil ETF (IEO) flat/scratch loss and bought XOP and Devon with some of the proceeds. This raised money while keeping our upsize exposure to oil. We also added a big chunk of Ascena when the shares sold off on disappointing (?) earnings and revenues. We listened to the ASNA conference call and there were no surprises. The company is on plan. Our guess is that the Ascena shares that were issued to ANN shareholders in the acquisition are still for sale. The shares rallied nicely later in the week. ***** Cramer: Who Needs GPS When You Can Follow This Market Map? | Mar 01, 2016 | 2:49 PM EST | 2 What do the bulls want? Sometimes that's the question to ask on a day like today because you can read the market like a map to tell you. So let me put my cartographer's hat on and explain the map that this market used to please the bulls and go higher. First, before we even got up, we got some news from overseas that pointed us in a path that could take us higher. You can always tell, by the way, that it's news from overseas that drives things because if you go to bed at 11 p.m. ET when the S&P futures aren't doing much at all and you wake up at 3:30 a.m. and they are flying, that's a sign that somewhere, someplace, we got good news that lasts. Here we got two good pieces of news from the same place. First, we got word that the Chinese economy is even worse than we thought, with manufacturing matching the lowest level in seven years, which, not coincidentally, is when the Chinese really got serious about moving their economy forward. The governing council of China, its parliament, meets Saturday and you know the stars may be aligned for the biggest stimulus package yet. "OK, so what," you say, but remember, there are always people out there who believe China can turn. Hope always springs eternal. Who knows? It sure turned the stock market around, which went from the red to the black as the session proceeded. Far more important, we got a shockingly dovish speech from Bill Dudley, the New York Fed president, who had been instrumental in a recent selloff by simply denying that anything had gotten weaker since the December rate hike. Back in January, Dudley set off a firestorm when he said it was all systems go for more rate hikes because everything seemed to be hunky-dory since the last one. That's been his party line since then. Until last night, when he gave a speech in China saying, and I quote, "On balance, I am somewhat less confident than I was before" about the economy. Further, he said, "partly this reflects my assessment that uncertainty to the outlook has increased and downside risks have crept up." Now it gets even better for the bulls as Dudley says, "At this moment, I judge that the balance of risks to my growth and inflation outlooks may be starting to tilt to the downside. The recent tightening of financial markets could have a greater negative on the U.S. economy should this tightening prove persistent." All I can say, if you are a bull, is hallelujah. I cannot stress how important this speech was. First, you have the leading hawk out there saying that maybe he was too bullish and he has to adjust course for the new, more negative reality That's so at odds with his previous statements that it is almost a surety, when tied in with the comments from former hawk James Bullard from the St. Louis Fed, that there will be no rate hike this month. It's also very significant that the comments come on the eve of the employment numbers release on Friday. The presumption -- right or wrong -- that Dudley knows it's a not-so-hot report permeated the talk of today and that really boosted stocks from the get-go. But you know what else has happened? If you go back two weeks ago, yes, two short weeks ago, you had this monumental flight to quality with money pouring out of all sorts of risky assets including emerging market bonds and high yield or junk debt here. In the last few weeks, though, the flows have reversed, putting an end to the flight-to-quality trade. How can that be? That's simple: If you think China's falling apart and the United States is slowing while the Fed is about to tighten, you have a nightmare scenario of policymakers on the wrong side of every common-sensical view. But if you have the biggest hawks on the Fed recognizing that there are some perilous issues and you have the Chinese recognizing that they have a real chance to do something big, you are far more likely to want to sell Treasuries and get more positive. There's only one more issue, though. How do you get positive if things are really bad in this country? How can you thread the needle? First, you need some positive data to come out. Voila, we got an important manufacturing number from our country that was stronger than expected, and then we got a small-business survey from Paychex (PAYX) that showed a nice improvement in hiring. Then, on top of that we got some excellent numbers from Ford (F) showing a solid gain in sales, just strong enough to call into question the notion that we are reaching peak auto sales in this country. Now, it is true that GM's (GM) disappointed, but remember, the bulls want to thread the needle, which means you need to see some strength but not so much strength that newfound hawk Dudley will have to backtrack. We don't want a recession, we just want decent enough growth to put the Fed on hold while we sort through the data. (Ford is part of TheStreet's Dividend Stock Advisor portfolio.) All of these bits of news come with a catch, though. How about oil? Will oil behave, meaning will it go higher? We know that if oil doesn't go higher, the oil companies won't be able to sell equity and they will default to the banks, which is the big bear saga that took the market by storm two weeks ago. Sure enough, oil is going higher. You want a microcosm of what that means to the patch and the banks? OK, one of the larger and, candidly, more troubled large oil companies is Marathon (MRO). Many had speculated that it would join the ranks of the dead men drilling and take down the banks that have lent it money, too. But last night Marathon filed to sell 135 million shares in order to ensure there would be no balance-sheet problems. It joined the rank of Devon (DVN), Pioneer (PXD), Hess (HES) and Newfield (NFX) in offering equity to raise cash to please the creditors. Perhaps because all of those other deals worked so well for investors, this Marathon deal was oversubscribed and the company ended up offering 145 million shares at $7.65 a share. That's 10 million more than they thought they could do. The offering was priced perfectly and Marathon suddenly went from a not-so-hot credit to a good one. It's a reminder that what matters to this market is that oil stays high enough that all of the sizable strapped oil companies can raise equity, so the banks that have been taking it on the chin from oil worries are off the hook. ***** Despite Dilutive Offering, Could Marathon Shares Really Still Double? Marathon Oil Corp. (NYSE: MRO) has placed old investors and newer investors in an interesting spot. By announcing the pricing of an upsized stock offering, the company is raising more cash than many might have expected. Is it possible that Marathon could have become the cheapest stock in the energy patch today? A fresh research report from Credit Suisse is effectively signaling that Marathon shares could still double. The first thing to consider with this maintained Outperform rating is that Credit Suisse did trim the price target to $16 from $18 in this call. That still implies just over 100% upside from the $7.96 prior close. Marathon recently priced the sale of 145 million shares of common stock at a price of $7.65 per share. All in all, this came to about $1.11 billion in fresh capital, versus a $5.6 billion market cap — and then consider that Marathon shares were down a sharp 75% from their 52-week high. Marathon Oil also granted the underwriters a 30-day option to purchase up to 21,750,000 additional shares of its common stock. If the deal priced at $7.65 and shares are now over $8.00, there is a better than great chance that the overallotment option has been exercised. Marathon Oil's use of proceeds is to bolster the company's balance sheet. The company also said that it will use the funds for general corporate purposes, including funding a portion of its capital program. When you see an analyst give a solid target right into a secondary offering, the first thing that might be considered is whether that analyst is in the underwriting syndicate. It turns out that Morgan Stanley was the book-running manager for the offering, and no other firms were listed as selling agents or co-managers in the syndicate. Again, Credit Suisse did lower Marathon's target price to $16. That is still an implied 100% upside from the $7.96 close. The firm's Edward Westlake said: While Marathon's bottom of cycle 2016 leverage metrics suggested some more assertive balance sheet protection was needed, Marathon also had decent liquidity. Well, now Marathon's liquidity is even more decent at $5-plus billion. History will tell whether it would have been more or less dilutive for management to roll the dice and wait for oil to rebound against a backdrop of rising medium term recession risks. The rest of the Marathon game plan should remain unchanged. Marathon has assets which it could sell (e.g. $750 million to $1 billion of midstream and likely gassier producing assets). Marathon has assets which could prove quite valuable over time (e.g. the oil sands, which would be worth selling once oil recovers given the improvement in operational performance). Marathon has a deep inventory of shale inventory which is not reflected in the share price. Bank of America Merrill Lynch recently maintained its Neutral rating, but that firm's call lowered the price objective to $19 from $23. The firm's investment rationale said: We view Marathon as a levered option to a recovery on oil prices. However, at the current oil price futures curve, Marathon has relatively less upside. Marathon pays a larger dividend relative to peers, which we believe is a threat to the balance sheet in a weaker commodity price environment. It was just in mid-February that Goldman Sachs named Marathon a long-term survivor even at $35 oil. Marathon hit a 52-week low of $6.52 on February 19, 2016. Its 52-week high is $31.53. The last time Marathon shares were under $10 before this last cycle was more than 10 years ago, on a split-adjusted basis. Marathon shares were last seen up 3% at $8.20 on Wednesday, on more than 13 million shares in the first 40 minutes alone. By Jon C. Ogg Follow us: @247wallst on Twitter | 247wallst on Facebook ***** Shares of United Natural Foods are plummeting 20.77% to $31.10 on heavy trading volume on Monday afternoon following the release of disappointing preliminary 2016 second quarter results. (The shares rallied back to Monday's level later in the week.) For the second quarter, the Providence, RI-based natural and organic food producer forecasts adjusted earnings per diluted share between 47 cents and 49 cents on net sales of about $2.05 billion. Analysts are looking for earnings of 61 cents per share on revenue of $2.07 billion for the period. The food distributor also cut its guidance for fiscal 2016 ending July 30. The company now expects adjusted earnings per share between $2.34 and $2.44 on sales in the range of $8.31 billion to $8.43 billion. In December, United Natural projected adjusted earnings per share between $2.79 and $2.89 on sales of $8.43 billion to $8.59 billion, the Wall Street Journal noted. Increased competition and a weaker Canadian dollar have pressured growth in recent quarters, the Journal added. ***** Goldman Sachs Hawks CDOs Tainted by Credit Crisis Under New Name The 2008 financial crisis gave a few credit products a bad reputation. Like collateralized debt obligations, known as CDOs. Or credit-default swaps. But now, a marriage of the two terms (using leverage, of course) is making a comeback -- it's just being called something else. Goldman Sachs Group Inc. is joining other banks in peddling something they're referring to as a "bespoke tranche opportunity." That's essentially a CDO backed by single-name credit-default swaps, customized based on investors' wishes. The pools of derivatives are cut into varying slices of risk that are sold to investors such as hedge funds. The derivatives are similar to a product that became popular during the last credit boom and exacerbated losses when markets seized up. Demand for this sort of exotica is returning now and there's no real surprise why. Everyone is searching for yield after more than six years of near-zero interest rates from the Federal Reserve, not to mention stimulus efforts by central banks in Japan and Europe. The transactions offer the potential for higher returns than buying a typical corporate bond, especially if an investor focuses on first-loss slices or uses borrowed money, or both. Obviously, the downside may be much greater, too. Michael DuVally, a spokesman for Goldman Sachs in New York, declined to comment. *****
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