iPredict Column

Thanks Dr Bollard

OCR.INCR,APR10 pays out if the Reserve Bank raises the official cash rate before 1 April 2010. I short sold this stock at 30c, and the price up until this morning had reached 71c, with the markets expecting Dr Bollard to change his stance of no increases until the latter half of 2010. I was seriously exposed to making a big loss.

However this morning he announced:

“In contrast to current market pricing, we see no urgency to begin withdrawing monetary policy stimulus, and we expect to keep the OCR at the current level until the second half of 2010.”

This has seen the price fall to 42c, and I think it will fall further. The Governor has been very clear as to his intentions, saying inflation is expected to track within the target range. Now it is possible he may end up moving before July, but I can’t see him doing an increase in or before March 2010.

MMP gaining strength

MMP.RETAIN dropped to 30c the day it launched, before rebounding to 50c. Since then it has steadily increased each day and is now at 60c.

I think that is a bit over-priced for the first referendum. Support for MMP in polls at at around 50% only, and even some supporters of MMP may vote for change at the first referendum to allow STV to be considered.

2010 Departures

DEP.KING.2010 is at 40c and DEP.GOFF.2010 at 30c. I don’t think these stocks will change much more this year, but if Labour’s gap in the polls continues in 2010, I expect they may rise further early next year.

DEP.ENGLISH.2010 remains at 11c with almost no trading, and DEP.KEY.2010 has not sold one share this week, remaining at 5c.

Unemployment

UNEM.DECL.SEP09 is priced at 5c, and it is indeed highly unlikely the unemployment rate will decline in the Sep quarter, even though the economy is technically out of recession.

However UNEM.DECL.DEC09 trading at 15c may be worth risking a purchase. Why? Well in other stocks UNEM.SEP09 is at 68c, representing a projected unemployment rate of 6.8% and UNEM.DEC09 is at 69c, representing a projected unemployment rate of 6.9%.

So the market is saying they expect the unemployment rate in December to be only 0.1% higher than in September. When it is that close, there is a greater than 15% chance, in my opinion, that December 09 may see the unemployment rate fall, and is worth a buy.

Labour

LAB.1NOV09.DN is trading at 59c. Considering the nightmare run of stories about Chris Carter, Rick Barker and others, I think Labour may fall below the 30% they got in the last poll.

Most Traded

The petrol price stocks still dominate the last week, with $14,500 of trades. Next were the Roy Morgan poll stocks with $7,300 traded.

Cheers,

David

Disclosure

David’s current positions are:

BROWN.RESIGN Short, DEP.GOFF.2010 Short, DEP.KING.2010 Short, DL.KING.09 Short, FASA04.REPEAL Short, GST.UP.JULY10 Short, LEAD.GOFF.09 Short, MAYOR.BROWN Long, MIN.DEPART2.09 Short, MP.ANDERTON Short, MP.PETERS.2011 Short, NAT.MAORI.09 Short, OBAMA.DISAP.4NOV Short, OCR.INCR.APR10 Short, OCR.INCR.JAN10 Short, PETERS.LEADER Long, PM.2011.NATIONAL Long, UK2010.CON.ABS Long, UK2010.CON.MAJ Short, ZIM.MUGABE Short

Links to stocks in this commentary: MMP.RETAIN, DEP.KING.2010, DEP.GOFF.2010, DEP.ENGLISH.2010, DEP.KEY.2010, UNEM.DECL.SEP09, UNEM.DECL.DEC09, UNEM.SEP09, UNEM.DEC09, LAB.1NOV09.DN

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