Wednesday Wrap-Up

What a nice recovery today!

Was it our man Paulson?  He didn't say much about the markets but he did let the Hedging community know he was on their side as he came out strongly in favor of the status quo (raping AND pillaging).

I know there was once a time when a public figure like Paulson would have recused himself from the discussion due to his long history and close associations with the industry possibly having just the slightest hint of conflict with his position AS TREASURY SECRETARY, but noooooooooo!   Secretary Henry Paulson warned that raising taxes on hedge funds and buyout firms may have “unintended consequences'' and said Congress shouldn't “single out'' firms that go public, such as Blackstone Group LP.  “I don't believe it makes sense to single out one industry,'' Paulson said when asked about proposed legislation at a conference hosted by the Wall Street Journal in New York. Senate legislation would force Blackstone to pay taxes at corporate rates of 35 percent instead of as a partnership, with a burden as low as 15 percent. “We need to be careful dealing with something like this piecemeal,'' Paulson said.

Yes, going after the people who are actually causing the problem is no kind of policy for THIS administration!

And it's a good thing too because, as we discussed 2 weeks ago, wealthy people put a substantial portion of their assets into hedge funds and we know they don't like paying taxes (they prefer to give directly to charity I hear..).  According to a brand new Wealth Report, there are now 9.5M people with over $1M in net assets who now control $37.2 Trillion of the World's wealth (up 11.2% from last year!).   For the first time, the 11th annual World Wealth Report detailed philanthropic giving, and estimated that high net worth individuals turned over $285 Billion to charitable causes in 2006.

That's equivalent to someone worth $100,000 giving about $766 to charity, or 0.76 percent of their wealth.  I guess charity does begin at home, but perhaps it begins in the wing that's under renovation – you know, the one you never get around visiting as you're only in that house from Labor Day through Thanksgiving and things are so hectic you just haven't had time to even learn the names of the staff on that side of the house, yet alone organize a charity function and don't we pay enough in taxes anyway?  (you can tell I spend way too much time in the Hamptons!).  Anyway if you went to that awful dinner to help whoever it was and you bought that thing at the auction that you didn't even really want — you're done all you can!

Also being covered today were a lot of shorts as the intensity of the rally caught a lot of them by surprise.  Not us, thank goodness, as I called shenanigans early this morning and 10 minutes after the market opened sharply down I said: "Who is NOT down, that’s what we need to look at today… "  Three minutes later I decided "Big tech is working so far – AAPL, INTC, MSFT, SNDK, TXN… "  By 10:23 I pointed out "Very strange, both my July DIA puts have lost value! VIX coming down a bit too.  DIA July $133 puts active, tight stops on $135 puts (up 135%)."

2 Minutes after that, at 10:25, ZMan and I addressed the nation on Andrew Coffey's show and actually went bullish on oil with the following selections:

• VLO $75 calls at $1, now $1.62
• XOM $85 calls at .65, now $1.08
• TSO $60 calls at $1, still $1.05 (I hate this company both ways!)
• EOG $75 calls at $1.2, now $1.65

The only way ZMan and I can improve on this month's broadcast picks would be if we just drove over to people's houses and gave them money so they wouldn't have to bother with all that tedious time it takes to actually buy the stock and wait an hour or two before cashing in!

The markets got some additional afternoon help as fund managers circled the wagons and downplayed the downturn.  Merrill Lynch & Co. Chief Executive Officer Stanley O'Neal and Goldman Sachs Group Inc. CEO Lloyd Blankfein offered reassurance to investors today, saying they see few risks of widespread turmoil in the credit markets. O'Neal said rising foreclosure rates on U.S. subprime mortgages aren't sapping confidence in other parts of the global debt market. Blankfein said the boom in leveraged buyouts has yet to reach a peak. “It's reasonably well contained,'' O'Neal, 55, said at a conference in London organized by Euromoney Institutional Investors Plc. “There have been no clear signs it's spilling over into other subsets of the bond market, the fixed-income market and the credit market.''

Here's just one of today's examples of how well contained this is!

Not since the Sting won 7 Oscars in 1973 have I seen such an all star cast assembled, at this London event, the one in NY and all over CNBC all day, all there to make sure the fix was properly in.  This is fine with us, we don't care if the game is rigged, as long as we know which way it's rigged!   We grabbed another Google spread on the dip and the writing was clearly on the wall at 12:15 when I said: "Don’t forget Paulson speaks in 1 hr 15 mins and it’s possible he will release prepared remarks so let’s watch for a sudden pop. DIA $134s for .38 make a fun momentum play as the $133s are .85."

While I remain on the fence until we get past this end of quarter "window dressing" week, one could bullishly construct an argument that this whole past week has been a flush leading up to these planned conferences and tomorrow's Fed report, which will somehow provide an excuse to send the markets up to 13,700, ending the quarter with a bang, not a whimper.  That's the problem when you're caught up in "The Big Con," even when you know you're being played you can't tell if the downturn was a ruse to get you to sell your shares or if the upturn is a ruse to get you to buy more.  Until we see the end of this movie, I'm going to be a little more comfortable holding onto my cash – even if it costs me an "opportunity or two.

Speaking of cash, we're up to about 70% cash in the more volatile STP and that's a good thing: