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KKR Financial Holdings LLC to increase by as much as 48%?

August 14, 2009 – Comments (2) | RELATED TICKERS: KFN

KKR Financial Holdings LLC (KFN - $2.90) 50 day SMA crossed above the 200 day SMA at $2.82. This is known as a "golden cross" to institutional traders (market movers). When the 50 day crosses below the 200 day this is called a "death cross". A stock trading above its 200 day SMA is looked at as healthy with an upward projection, the opposite is true for the inverse. These moving averages are also used for support and resistance levels. Many times when a 50 day SMA meets the 200 day SMA the stock heads back where it came from meeting its resistance or support level.

Most recently FBR Capital Markets upgraded KKR to outperform with a PT of $4.00. Since March 31 following the improvement in the credit markets, management was able to enter into deals that alleviated certain CLO triggers that were trapping cash flow. These CLO's (Collateralized Loan Obligations) are special purpose vehicles with securitization payments in the form of different tranches. All this means is that these payments are pooled together and passed on to the owners of these tranches similar to collateralized mortgage obligations. Although the current price might seem cheap compared to its book value, investors should consider the significant risks in the capital/credit markets prior to investing. KKR continues to make investments in the same vehicles that caused its stock price to drop to .40 : commercial real esate loans, debt securities, asset-backed securities, corporate loand and debt securities.  Sounds to me a 48% drop is in the cards just as much as a 48% increase.