Wild Wednesday Morning

Yee-haw, here we go!

Another day, another 600-point gain for the Hang Seng, now back at 22,346 and up a healthy 3,000 points from Friday's low.  Are they crazy or are we simply missing the party?

David Fry notes that we are not getting the index action we would expect of such a bold move in the China market but I'm not surprised, I went to cash this month and, as we can see from the treasury action, so did pretty much everyone else.  The problem we've been discussing on the member site this week, as we sit around counting our cash, is that there simply aren't any "good" alternatives for our money! 

• Cash – dollar is unstable
• Mutual Funds – underperforming the markets
• Money Markets – low returns
• International Funds – too scary
• Commodities – looking toppy
• Hedge Funds – aren't they being investigated?
• Real Estate – LOL
• Bonds – low returns and looking riskier
• Mortgage Backed Securities – ROFL!

US equities anyone?  We may actually be the least sucky place to put your money in the second half of '07.  For foreigners, the dollar doesn't seem like it can go much lower and for local investors, it's hard to find a place to park a significant amount of capital.  Sure we have this overhang of sub-prime mortgages and we're fighting a war of attrition for goals we're uncertain of at an absolutely staggering cost while plunging the economy onward to $10T in debt but – so what?  We've been doing that since 2003 and the market is up over 50% since then and last year I dubbed it the Meatball Market because bad news Just Doesn't Matter!

We touched 12,500 (a 10% correction) and are likely to see it again but, if we can consolidate around 13,000 for the quarter, there are enough pockets of strength among our 9,000 public companies that we may get a chance to rally around a new leadership.  That will let us markets take us to new highs that can be sustained on fundamentals – an that's a good thing!

Yesterday we finished out virtual portfolio purge and got down to just 10% invested but boy do I love those remaining positions.  In thinking about what to invest in first I decided we need to first consider adding more to the successful positions we already have and I will have a Long-Term Virtual Portfolio Review ready by mid-day on the member site.  Meanwhile, we certainly have enough free capital to make a few moves on short plays so Happy and I will be combing the markets for some timely trades.

Europe is in a pretty good mood this morning but is it good enough to give us some lovin' on the Big Chart?

On the whole, nothing happened since last Friday!  The Hang Seng is still greener than green while the CAC and FTSE are still redder than red (along with our markets, of course) but the Nikkei is recovering from a 1,711-point drop in the first two weeks of the month and the SOX and the Nasdaq are sneaking up on us.  If we can get the Transports and the Russell in gear, we may be ready to get behind some new leadership.

While the fundamentals of the market are still terrifying – I also pointed out this weekend that we can't play things TOO safely, as we can end up defending ourselves into a corner.  Winners look for an opening and fight their way out and, as we say at PSW – There's Always an Option!

You would think TOL is out of options looking at their abysmal earnings report (down 85% to .16 per share), poor outlook ("Tightening credit standards will likely shrink the pool of potential home buyers, mortgage market liquidity issues and higher borrowing rates may impede some customers from closing, while others may find it more difficult to sell their existing homes.") and lack of guidance ("In the current environment, we are not comfortable providing fourth-quarter guidance at this time or confirming any previous guidance.") but they are UP 3% pre market.  Why?  Because it just doesn't matter!  We know housing is a disaster – tell us something we don't know – we're bored and we need something to buy, even TOL…

Cramer was talking up dividends last night and Bespoke put up a nice article listing some dividend-oriented ETFs, this is a nice place to park some of that cash.  DOO is very interesting as they are 50% global financials and have taken a huge beating of late, meaning your dividends as a percent of share price will go up!  PID pays a higher dividend (3%) and has also come down nicely below $20 – you'll notice a very strong flush on the chart on the 16th (div was paid on 15th), much like the one that preceded a 20% gain from March – July!  If you have to park cash – this is a BUYBUYBUY at $19.62.

LFG was one of our favorites on the way down the past couple of months, along with their pals at FAF and FNF so let's keep an eye on them if the housing sector starts to rally as I think LFG should get good support at $53 (down 50%) and the Jan '10 $55s are an irrational $12.65 as we can sell the current $55s for $4.35!  This whole group can make for fun momentum plays if things pick up.

GOOG is finally monetizing YouTube with commercials that they claim will be "less annoying" as they will run in an overlay at the bottom of the clip.  If this works they are going to be rich(er) but this will be attempt # 1,675,482 by advertisers to convince us to like commercials so I'm a little dubious.  Still, anything that adds income to GOOG will get people crunching numbers again so I'll be looking to roll my positions back a bit and giving them room to run.  Hopefully we'll get a pullback but I already have Sept $530s, $540s and $570s so we'll see how they do today…

Time to work on the members picks but I'm cautiously optimistic as the CB's are putting a huge effort into maintaining the markets and people seem to be buying it.  Let's be very clear though – I am maintaining very tight index puts on every gain and I fully expect to go back to 12,500 but let's enjoy the ride – we don't stay off the roller coaster because it goes up and down!

According to the WSJ:   "The Federal Reserve injected $3.75 billion, following the $3.5 billion it put into markets Monday. The European Central Bank allotted €275 billion ($371 billion) in one-week funds, which is €46 billion more than it estimated banks need for routine business. And the Bank of Japan put 800 billion yen ($6.96 billion) into its market, following an infusion of one trillion yen Monday.

"Meanwhile, Russia's central bank hurried to buoy the weakening ruble and keep money rates stable. In a rare move, Russia's central bank sold around $4.5 billion on the market yesterday to help support the ruble, traders said. It also injected 87.8 billion rubles ($3.4 billion) into the market through two one-day securities repurchase agreements."

Look at that, all the world working together in peace and harmony to bail out rich folks – it's a beautiful thing!  😎