Like a cartoon figure running off a cliff, the market suddenly realised that it was walking in mid-air, and took a dive. Although everyone has been aware of the "sub-prime loans" issue since mid-year, it appears that the concerted action by several countries central banks, coupled with Greenspan's comments about possible stagflation (economic stagnation (read recession) coupled with oil-price induced inflation), has finally made investors risk-averse. The Australian market is suddenly no longer "uncoupled" from the US-market, and has dropped around 10% in three days trading. The worst hit large local stock is Centro Properties, which had geared up massively to invest in US shopping centre and other property investments over the past year. After sliding from a all-time high around $10 to $6 over the past few months, last week they went into a trading halt and yesterday announced that they had been unable to refinance short term debt as they had planned. It now looks as if they'll have to try to reduce their debt rations in order to obtain further financing, which will mean selling off assets they had only recently purchased, probably at a huge mark-down, considering the state of the US property market and poor retail sales prospects.
My portfolio has dropped around $40,000 over the past week, and unfortunately the Index Put options I had bought as "insurance" against such falls isn't working any more (the options expire on 20 Dec. The Index is still around 6200 and the options aren't "in the money unless the index drops below 5500). To divert myself from this depressing state of affairs I've dabbled in buying some Centro Property Stapled Securities (CNP). As shown below, the share price had dropped to $1.60 yesterday, and today it plunged further to a low around $0.44 before rebounding. I bought a small parcel of 3,000 CNP at $0.66. This is probably another $2,000 down the toilet, but if Centro does manage to offload some of their assets at a reasonable price and obtain refinancing the stock price could recover substantially by the end of next year. I did a similar purchase of QBE shares when they plunged after "9-11", as the hit due to their exposure to the twin towers re-insurance seemed likely to be temporary. Centro is probably more of a gamble, put the amount invested is not significant.
Update: By close of trading CNP had recovered to $0.85, so it looks like my hunch that CNP was oversold might have been correct (at least for today). Only time will tell if they can manage to refinance their debts and retain value over the longer term.
Copyright Enough Wealth 2007