Fickle Friday Morning

February 16, 2007

358

We have to give the markets a pass today.

It’s option expiration day and any movement you see today needs to be taken with a rather large grain of salt.

The Fed came out with a bold statement – that low unemployment may not necessarily lead to higher inflation. This is part of the new global paradigm we’ve been discussing for the past 2 years (see all previous columns!). As I’ve often said about outsourcing, we don’t just outsource the low-paying jobs, we outsource the pollution, the inadequate housing, the health, welfare, education and retirement burdens that come with employing 50M minimum wage workers who couldn’t be found in this country even if you wanted them.

Speaking of the globe – is it just me or is money getting cheaper? Here’s a 30 year chart of the 30 year note, you tell me why HB’s making a comeback.

Maybe the global markets have gotten so efficient that money can be profitably marketed for just 4% interest. If we think of money as a product and think of Central Banks, the IMF and, of course computers as devices we use to increase manufacturing and distribution efficiency, it’s not so hard to see that maybe the cost of money has simply declined over the years. Citibank certainly seems to be able to squeeze out a living in this environment…

China raised the deposit rates for lenders for the 5th time in 8 months, still trying to keep a 10% cap on their growth rate. Starting 2/25, commercial banks must keep 10% of their deposits on reserve with the People’s Bank of China, compared with 9.5% previously. "There is relatively large pressure to expand lending, and a further increase in the reserve requirement ratio was needed in response to changes in the liquidity situation," the central bank said in explaining the move.

Japan’s GDP grew at 4.8% in Q4 and they are complaining that their consumers are asleep at the wheel! What will happen when they wake up and start shopping? What if American consumers start saving like the Japanese do? LOL – well of course that’s not going to happen but it’s funny to say!

Asian stocks were flat today, taking a much needed break after a week of nice gains. India was the exception with another huge day, this time leaping 2.5%, up 345 points to 12,355. The BSE was my 2006 choice for the market of the year and it was indeed the winner and I’m getting nervous about my choice for 2007 as the Dow is taking a little longer than I wanted to get it in gear. It’s going to take some 300 point days on our end to start catching up!

TM ousted DCX as Europe’s top car maker with a 21% rise in January sales over last year. Still the total was 76,649 registrations out of 1.29M total for the month, indicating TM still has room to double by just taking 6% of the market share away from the other competitors. Heck, GM loses 6% of their market share per quarter!

Europe is flat too and the EU backed off making their 20% by 2010 target for renewable energy mandatory. This should provide some relief to EON who also are under the microscope for simply being too darned big.

Today I say: Ask not what the markets can do for you, but what you can do for the markets! We’re going to need some real investor confidence to give us the boost we need to break free so clap hands for the semis, who need it the most but we also need our pals Google and Apple to come out of hibernation and give us the green light to go back into tech.

Steve Balmer was no help yesterday, telling us we have been overestimating Vista shipments so look for a bad start as this DOW, S&P and Nasdaq heavyweight takes a 2% hit to start the day:

Dow needs to hold 12,750!
- Transports need to hold 2,900.
S&P needs to hold 1,450.
NYSE needs to hold 9,400.
Nasdaq needs to retake 2,500 – 2,475 must hold but won’t be encouraging.
- SOX 470 must hold – like the Nasdaq, they are too weak to stop, 475 would make me feel better…
Russell 820 will give us a real rally sign and 815 needs to hold.

The global heatwave I mentioned last week in comments is heating up with London and Paris posting 50 degree weather this week. Our weather should break this week, just in time for the NYMEX boys to shake the ice off their 400M+ April barrels and decide where to put them by March 20th.

Still, we don’t like to short oil into the weekend so make sure you have reasonable cover plays into the weekend. If we are lucky enough to get ahead I will be lightening up a bit on profitable puts. We still have the ellusive $58.50 mark as topside resistance with $57 being the downside break point they have been working so hard to defend. There are currently 102,225 open March contracts so this week’s contest is going to be for whoever comes closest to the March barrel count as reported by tradingcharts.com at the close of Tuesday’s trading.

The winner will get a free month of membership AND an IPod Shuffle providing they are 18 years of age and a resident of this solar system and providing that it’s legal and proper for me to have a contest like this! If this works out, we can do one every month!

Gold will do whatever the dollar doesn’t so we won’t worry about it.

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BRCM is back in the news as the option scandal heats up again. I recommended them way back on 9/11 at $25.70, saying at the time that the sell-off was overdone. Now that the stock is up at $35 I wouldn’t be so sure it’s safe to ignore the short-term impact of additional news.

Also of note, back then I said: "The IRS may take issue with what is looking like, on a wide scale, a $100Bn plus fraud that has been perpetrated on the US public as the companies manipulated books to create long-term capital gains but the benefit should have been realized at the time. Worry much more about that than class action suits!" and gosh, wouldn’t you know it – that’s exactly what’s happening!

In that same article I recommended LBTYA (was $25, now $30) and CMCSA (was $35, now $41, down from $45 last month) so don’t say I never give you any straight stock picks! I pick stocks when I dont’ think they are overbought – now is just not one of those times!

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Just as I was getting fed up with KO, GS came out with an upgrade today! They also like our PEP so this should be a good day for our beverage plays. Unfortunately, Goldman giveth and Goldman taketh away as they don’t like our STZ but, since they are already down to a dime from our .35 purchase – we don’t like them either! Here’s a nice article by Jon Markman on Why Coke’s a Buy.

Today is a good day to make sure you made all your trades for long-term positions as we discussed in the very extensive weekend review. I’ve got my Dow puts as I still think that oil and housing can drag us down a bit but I don’t feel a real sense of urgency to force sales unless we start losing my levels. Don’t forget Monday is a holiday but Asia will be mostly closed too and not much usually happens in Europe anyway…

GT is down because of a strike that killed their quarter. Today may be a good time to get in.

EXPE got hit by a downgrade! I’m selling the March $22.50s for .50 as insurance on our leaps!

Lots of moves to make today:

AAPL Mar $90s will be DD’d at .90 or less
- maybe for a buck but I’m hoping for an option dip.
- This will allow me to sell Mar $85s for $3 against my July $85s without worrying that it will shoot up on me
Must watch the BOBJ $40 caller
Must watch the BTU $40 putter
CTX $50 putter seems safe to expire
DELL needs to DD or roll to a lower bracket, I can’t decide yet
I hope our DIA $125 putter will expire worthless!
- I may consider selling DIA Mach $128s for $1.30 against my Junes
FDX $115 caller must be dealt with
- I think buying them out as FDX looks pinned, not stalled
I must bite the bullet on the GOOG putters, we went too far in the money!
MRO Feb $85 putter is sure to expire worthless
MSFT April $30s should probably come off, we have a small buffer on the Feb $30s we sold
Our NOV $65 putter should go out worthless
PD $115 putter should go down without a fight
SLB $65 putter needs to be taken out
XOM Feb $72.50 puts will be rolled to Mar $72.50 puts for .45.