Well that went pretty much as expected.
Holy cow did we have a great day, the market did everything but make coffee for us today as we were positioned perfectly for the run-up and the sell-off. We also had a fun bonus day focusing on BIDU (and you can do this when you are properly hedged and not worried about the bulk of your positions) as we got 3 Daily Doubles off that one stock!
We got our BS rally in the morning and it gave us plenty of chances to re-cover early in the day and we held yesterday’s highs for most of the afternoon but it all ended very badly for the markets as C led the financials lower when it was announced that NYX’s John Thain would head to MER instead. BSC announced additional write-downs ($1.2Bn) but gave no real assurances that this would end and news came to light that a supposedly "safe" GE bond fund took a loss in mortgage-backed securites and the company was offering 96 cents on the dollar to unwind it.
If your money isn’t safe in the "GEAM Trust Enhanced Cash Fund" then there really is no hope. Bond funds are regulated heavily to protect investors’ assetts and the fact that these instruments are getting hit (and it’s a VERY small hit) shows the undeniable extent of the sub-prime crisis.
There’s a nice article in the WSJ summarizing this week’s melting mortgage market but what struck me here is that "ABX indexes tracking the worst subprime mortgages are worth 20 cents on the dollar; even the double-A rated ones are at 40 cents on the dollar, according to Markit." Those GE bondholders are getting off lucky! Check out the 2nd comment under that article as that person makes a good case to be very concerned about BAC’s real exposure (and, by extension, all banks).
Sadly, I wrote about all this happening back in March when I said "Are We Heading for an Economic Tornado" and it’s interesting to re-read it as the winds are starting to swirl all around us now.
Despite all the insane excitement around the morning’s retail report, M shot the market with a dose of reality as they lowered Q4 guidance, despite turning in a nice Q3 report. The company is delaying "some or most" of a planned $1Bn share repurchase. I remind you that, if XOM stops buying their own shares, they will lose 1/10 of the buyers of their stock!
The dollar hit 75.40 but bounced back to 75.83 and may have found a floor but gold shot up to $815, more of an inflation issue than dollar weakness I think. Oil finished the day back at 92.83 after a spectacular end of day pump and Nigeria’s Rent-A-Rebel is back on the job, attempting to bail out traders before they lose another $1Bn after tomorrow’s oil inventories disappoint. If you listen to Criminal Narrators Boosting Crude you would think something terrible happened in Nigeria but thank goodness for the International press, where we find out that "Gunshots were fired outside ExxonMobil Corp.’s main oil export terminal in Nigeria on Monday, officials said. No injuries were reported." It’s a real shame when you can pay a group of kids in Nigeria a hundred bucks a piece to shoot off some guns so your 10M oil contracts can gain $2 in value isn’t it? Click on the photo for video of Exxon’s reaction to the rebel attack…
I’m starting to get interested in DUG, the ultra-short oil and gas ETF, which has been going up on tremendous volume the past 2 weeks. DUG April $37s are $9.60 and you can sell the November $43s for $1.07 and then sell the December $44s for $3 on Monday, that’s a pretty good collection rate for 3 days of trading! These are very thinly traded options so just an experimental bet but maybe we can create more of a market for them and I think they’ll be fun to trade!
Well we tested the top end of my 13,300 range, perhaps we can retest the bottom tomorrow – that’s the way this market’s been going with these wild swings!
