Atlantic Tele-Network Leads Small Caps on Acquiring Verizon and Vodaphone Assets
Interest rate concerns and inflation worries put pressure on stocks today after the government's sale of $19 billion had a harder than usual time getting buyers. Investors seem concerned about the government's growing debt and that it could spur higher inflation and interest rates.
The Dow lost 24.04 points to close at 8,739.02; the Nasdaq shed 7.05 points to end the trading session at 1,853.08; and the S&P was down 3.28 points for 939.15.
Stocks comprising the Russell 2000, comprised of the 2,000 largest small-cap stocks, brought the index down to 523.41 on a loss of 4.52 points.
Today's small-cap gainers were lead by communications firm Atlantic Tele-Network (Nasdaq:ATNI) up 42.29% at $37.92. ATNI was up on news from yesterday's announcement to acquire wireless assets from Vodaphone (NYSE:VOD) and Verizon Communications (NYSE:VZ). Primarily doing business in the Caribbean, ATNI now picks up nearly a million wireless subscribers in the U.S. southeast and Illinois and Ohio. Because of regulatory requirements on Verizon to sell off some subscribers as part of its deal with Alltell, ATNI is substantially changed from a small operator overseas to a real player in the U.S. market.
Other small-cap leaders include one of yesterday's leaders, Satyam Computer Services (NYSE:SAY) up 35.7% after being rated "overweight" by an analyst from JP Morgan; American Axle & Manufacturing (NYSE:AXL), another of yesterday's leaders, up 25.7%; and Corel Corp. (Nasdaq:CREL) up 34.75%.
Decliners were lead by NCI Building Systems (NYSE:NCS) down 26.1% on worries over its reports of larger than expected Q2 losses. Shares were going for $3.16 at market close, down from an opening price of $3.80.
Other small-cap decliners include one of yesterday's leading gainers, Sequenom (Nasdaq:SQNM). Yesterday SQNM lead small-cap gainers with a 45.97% gain but today lead decliners by shedding 22.83% of its opening price to close at $4.09. And after shedding 20.17% off its price yesterday, Quiksilver (NYSE:ZQK) saw shares drop another 12.71%. So far this week investors holding shares in Quiksilver have endured a total loss of 27% since Friday's close.
*****"The worst is to come…"
That's what MetLife's (NYSE:MET) Chief Investment Officer Stephen Kandarian told Bloomberg this morning.
He was talking about commercial mortgage defaults. He notes that "[t]ypically there's a lag between when the economy softens and when the defaults actually occur."
Bloomberg also cites a study from Real Estate Econometrics LLC that forecasts default rates for commercial real estate may hit 4.1% by the end of the year.
What does commercial real estate have to do with an insurance company? Plenty…
*****Insurance companies take in cash in the form of the premiums we pay. They then invest that money in order to pay off claims down the road. As their investment returns compound, they profit.
But when their investments lose money, trouble starts. And trouble is exacerbated when insurance companies sell guaranteed returns to investors in the form of annuities.
The promise of annuities forces insurance companies to seek riskier investments to boost their returns. And many have turned to mortgage-backed securities to make more money.
Whoops.
*****MetLife has a $300 billion investment portfolio. That portfolio lost 23% in the first quarter of this year. Mr. Kandarian freely admits he's looking for higher returns to make up the losses. And he's looking at adding securities backed by commercial mortgages, in addition to continuing to originate loans to the commercial real estate sector.
It reminds me of the gambler, who after suffering a big loss, decides to start doubling down and taking more risks to win his money back. It usually doesn't end well.
Of course, what he should do is simply step away from the table. But MetLife and other insurers can't -- they have to make money to meet their obligations. It's not a sure thing, but I can imagine it ending poorly for some insurance companies.
