Monday Mop-Up

by Phil - July 23rd, 2007 11:45 pm

That was the least exciting 90 points we ever gained.

We were not very happy with that rally as it was just the typical M&A Monday sort of thing without the broader participation we would have liked to see that would have indicated a run-up to new highs.

Our finish was very weak and we failed to retake Friday’s open with the poor Russell still stuck in the mud, down 1.5% for the past 5 days.  We are still up about 5% for the month (with poor Russell dragging us down) but the SOX have given up their leadership and no new index looks anxious to take their place.

That was surprising as there was EVEN MORE M&A activity than I reported in the morning as URI agreed to go private for $7Bn and NOK/SI is offering $7Bn for TLAB (if $7Bn is some sort of magic number I will humbly offer PhilStockWorld up for consideration!).  When $105Bn is offered up to the markets in one day and we can’t hold  a 100 point gain - that is not a day we can crow about!

35 of the Dow’s 92 point gain came from MRK, who ran into heavy selling near the close and the post-market reporting was bad to say the least with AXP missing by .03, TXN just in-line, NFLX guiding down, AMLN in-line and ALTR reporting declining revenues.  None of that really matters as tomorrow morning is a very busy day with morning earnings from AKS, BIIB, BJS, BNI, BP, BTU, CFC, CME, DD, EDU, KMB, JBLU, LLY, LM, MCD, NOC, OXY, PEP, SVU, T, X, UAUA, UPS, USG, WAT and XTO followed by AMZN, AFL, BXP, CAKE, CB, CTX, PNRA, RDN, STM and RHI at the close so we’ll check our levels and see how things are shaking out:

That’s a lot of work to get pretty much nowhere from last week’s chart.  While Asia continues to make strong advances, Europe has been quietly slipping away with the CAC falling through our tight ranges since the 13th, when it peaked out on the elections.

While oil came down a bit, it didn’t come down enough yet but the finish under $75 was encouraging as it broke a trend of senseless pumping which, as I said in the morning, is getting more and more expensive to maintain as the market treads into backwardation.  It will not do us any good if the front-month contracts fall without…

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Monday Merger Mania

by Phil - July 23rd, 2007 8:23 am

It’s Monday and the money is flying on Wall Street!

Thank goodnees SLB chased us out of shorting most of the OIH group last week but I still have some leftover RIG puts that are never coming back now that they announced a $53Bn mega-merger with GSF.  $15Bn is going back to the shareholders in a very large financed buy back so both companies should go up on this news and the OIH may make a nice momentum play in the morning.

Our faith in CCJ may be rewarded as Electricité de France SA said Friday that it will buy an interest in CEG in order to develop next-generation nuclear reactors in the US - well, if we’re not going to invest in our own infrastructure at least foreign companies are starting to make some investments!  Constellation and EDF said they aim to build 1,600-megawatt nuclear machines designed by French state-run engineering company Areva SA and which are being reviewed by the U.S. Nuclear Regulatory Commission for licensing.  Also, there has been nice progress on our negotiations to power up India - all bad news for the oil pushers.

TFX is buying ARRO for $2Bn in cash, German lender Hypo Real Estate is buying Depfa Bank for $8Bn ($4Bn cash) in a risky dillutive move I’d love to play, TomTom is buying Tele Atlas for $2.7Bn after announcing a 37% increase in sales and a 79% increase in profits, the $5Bn bid for EMI Group has been extended, European insurers Friends Provident and Resolution are in a $17Bn merger and HPQ is spending $1.5Bn for OPSW.  Another Monday, another $25Bn in equities coming off the market and another $91Bn in transaction for GS et al to collect some fees on.  Hard to be short on a day like today - I always try to keep things in perspective by multiplying Monday’s deals by 52, to see if it seems strong for the year and $91Bn x 52 is $4.7 Trillion, so I can state with virtual certainty that this is indeed - A BIG DEAL DAY!

I’m not even mentioning that BCS has upped their bid for ABN to $93.2Bn because that mostly cash deal alone multiplied by 52 would be about the same as someone just taking the entire Russell off the market.  BCS is finding partners in Asia, including one of our "Duh" stocks - China Development Bank.  At the pace BCS and RBS are upping offers, we could have $100Bn on the…

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Weekly Wrap-Up

by Phil - July 23rd, 2007 6:08 am

Whoopie, yet another amazing week put to bed.

It’s always great when pretty much all of our major bets work out:

Last Friday Zman pointed out some refiners that had gotten ahead of themselves and we decided HOC Aug $75 puts at $2.25, now $2.88 and WNR Sept $55 puts at $2.12, now $3.50 made good plays.  We also liked BHI Aug $85 puts at $1.62, now 4.15 from the 12th and the BHI July $85 puts at .30, which finished the month at $2.60.  That was the last of our official "Free Picks" but there were so many good plays lest week we still found a couple of new ones to play.

In last week’s wrap-up I outlined Dr. Brett’s concerns about the market and nothing that happened last week changed our opinion of that.  On Monday morning I promised a thrill ride for the week and that’s exactly what we got with the Dow; up 150 by Tuesday afternoon, back down 175 to 13,850 by noon on Wednesday, up over 14,000 again on Thursday morning and back down to 13,800 at 1pm on Friday.  Since we went into the week with a pretty good strangle on DIA puts and calls (which we spent the whole month working into), it’s no surprise that they were the stars of our portfolio, accounting for much of the week’s gains despite the fact that they are there mainly for "protection."

In Monday’s wrap-up I pointed out that the dollar could go further down and that gold could go further up, and they did.  Finally all that discussion about China and the Euro and the carry trade starts to pay off for us! 

Someone was interviewing me last week and they asked me if we specialize in energy and I said no, it’s just hot so we talk about it.  I explained to him that if medical devices were hot my members would know every last detail about drug coated stents because, over the long haul, THAT’S HOW WE MAKE MONEY, we take the time to learn the sectors that are in play because this is not roulette, this is the market and there are market forces at work and understanding those market forces allow us to make sensible bets over time!

On Tuesday, Happy and I were concerned and I said: "I don’t expect to break 14,000 without some sort of "venting," as Happy likes to say so let’s stay light on our feet and keep our eyes wide…

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