Readings: Morgan Stanley Triple-Sell, Asian Markets, Branson’s Collar Option
- FT Alphaville: ‘SELL, SELL, SELL’ from Morgan Stanley
It’s a full house at Morgan Stanley, with the bank’s three key indicators all flagging up sell signals as of Tuesday. ‘Fundamentals’, on the back of higher bond yields and higher ISM new orders, has come into line with the existing sell signals from the ‘Valuation’ and ‘Risk’ indicators.
That across the board has occurred only five times since 1980. Equities have always been down in the following six months, by on average 15 per cent (see below). Previous occasions include September 1987 and April 2002a
- Mauldin: Asia - Hot Market or Frenzy?
If you look at the MSCI AC ASIA Pacific Free Index from its inception in 1987 through 2006, you can see that these markets have historically been highly volatile.
Returns over this time period have annualized to a mere 1.98%, with a 20.20% standard deviation. Let me put it in concrete terms: there are three periods in the last ten years when a million dollars invested, at the wrong time, would have been HALVED by a down market. That’s some serious volatility.
- FT.com: Branson to tap derivatives deal
The arrangement enables Virgin Group, which is the UK cable company’s largest shareholder with a 10 per cent stake, to borrow money against the value of the shares pledged without losing any of voting rights or dividends.
Sir Richard’s arrangement is what is known as a “collar option”. This combines a long call option on the stock with a short put option. In other words, Virgin Group is being paid for the obligation to buy shares above a certain price, while itself paying for the right to sell shares below a certain price.
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