Tuesday Morning

I’m still mad at Steve Ballmer.

Certainly there must be some laws governing what CEOs can and can’t say to prevent them from just making random statements that impact the markets.  There used to be some sort of oversight – wasn’t there?  It’s one thing to think that the various investment funds are out there spinning the news and manipulating the markets to meet their goals but if the CEOs of the corporations do the same thing, at a certain point you are going to start chasing investors back to bonds and that’s not good for anybody.

According to Nokia’s CEO "The communications industry has a truly historic opportunity ahead of us to bring mobile and fixed broadband connections to the five billion people who will be ‘always on’ by 2015."  I doubt more than half of them will be using Windows so perhaps we won’t have to put up with Ballmer’s shenanigans too much longer…

Novel has a nice new ad campaign for Linux that makes fun of the Apple/PC ads that are so popular.  Our man Steve says "Linux is a cancer that attaches itself in an intellectual property sense to everything it touches" but perhaps that’s just sour grapes as Linux grows by leaps and bounds with close to 300,000 active Linux developers working on 78,000 projects dwarfing MSFT’s 78,000 employees.  Here’s Steve telling the faithful what he really needs (does he look worried to you?).

Asia was a little worried this morning with the Nikkei dropping 156 points on the housing news that didn’t seem to bother US investors yesterday.  The Hang Seng backed off 59 points as exporters became nervous that the worst home sales numbers since 2000 might actually matter.  "The market had built up overly optimistic expectations for a soft-landing scenario" in the U.S. economy", said Sean Darby, head of regional strategy at Nomura Securities in Hong Kong. "The credit problems are going to be much longer-term for the housing market; it’s not allowing inventory to clear, and this is going to be a persistent problem for the U.S. economy going over the next six months."

Of course CNBC will cheerlead by telling you that Shanghai posted its 5th consecutive gain, as if that $500Bn market outweighs the Nikkei and Hang Seng’s $10T.

In August 2000 (last time new home sales were this low) the Dow was at 11,500, the peak of the Clinton years but it had already dropped to 9,500 by September 10th, 2001 as those clever tax breaks really started to kick in!  The US markets "trickled down" all the way to 7,500 by Oct 2002 before regrouping in March to form the recovery (it’s hardly a rally when we are up 1,000 points in 7 years) that is currently sputtering along.

Unfortunately, rather than a recovery in services, manufacturing and technology that provides lasting growth and jobs, this recovery has been essentially a transfer of wealth into the commodities of housing, minerals and, of course, energy.  Other than Google, what exciting American companies have sprung up since 2000?  Who will be the Fortune 500 of the future?  Sadly, that list of names requires a pretty good command of Asian languages to pronounce properly.

We will see how temporary construction jobs can be very soon if housing trends continue but European shares are rising this morning, led by mining stocks so at least we have those jobs to look forward to!

DCX is delaying Q1 earnings as they figure out how to book a $31Bn write-off of they purchase of Chrysler (assuming someone actually does give them $5bn for it).  According the the WSJ: "Estimates vary with the value placed on assets such as brand names, factories and materials, all weighed against Chrysler’s estimated $19 billion long-term liability to pay health care benefits for unionized retirees.  Some analysts say the liability exceeds the value of the assets, meaning DaimlerChrysler would have to pay someone to take Chrysler. Others say the company is worth more to the right buyer."  DCX May $75 puts are a fun play at $2.30.

Who is in Russia?  That’s right!  Hu Jintao has been meeting with World leaders (funny, he didn’t make it out this way) and is over in Russia "to expand economic cooperation between the two former rivals that has lagged behind thriving military and security ties."

Ignoring critics who question the wisdom of arming a potential rival, Moscow has sold billions of dollars worth of jets, missiles, submarines and destroyers to Beijing, making China the top customer for Russia’s defense industry. "Cooperation in the military and military-technical fields will continue," Mr. Putin said.

The two leaders also pledged to continue efforts to boost the Shanghai Cooperation Organization, a regional grouping created by Moscow and Beijing to counter U.S. influence in resource-rich, strategically placed Central Asia. In the communique, Messrs. Putin and Hu emphasized their intention to strengthen political, economic and security cooperation with four ex-Soviet Central Asian nations which are members of the grouping.

The two leaders also promised to help complete six-way talks on ending North Korea’s nuclear weapons bid and they called for an international agreement to bar the deployment of weapons in space — an apparent reaction to U.S. plans for space-based missile defense system.  This is how it feels to be marginalized as a country…

LEN had in-line (terrible) earnings but comments that stopped just short of "sucking" and withdrew guidance as it "isn’t comfortable providing a new earnings goal at this time."  Let’s see where we are with our current levels:

So we are looking for the Transports to perk up to confirm a real rally but we have to be very concerned about the action over in Asia if they can’t get themselves into the green.

Oil, is of course a major concern and we’ll be watching the $62.50 level with great interest.  The Iran Hostage Crisis (Silver Anniversary Edition) is dragging on longer than I thought but inventories will be very interesting and ZMan sees natural gas prices as a strong indicator that the crude "rally" may not have legs once people get bored with Iran.

We went back to net negative in the energy sector yesterday but we’ll be taking some new covers before the day is done as it is far too dangerous to make a uni-directional bet this week.

The dollar continues to languish and see yesterday’s wrap-up for my concerns there.

Let’s all be careful today,

– Phil

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I forgot to post our closed positions last night.  We took part of our oil covers off the table and made a nice intraday trade on TSO calls for a quick 19% gain (at the same time as we cashed the puts for a nice profit).  I’m getting a little more confident that oil is topping here but not enough to start buying more puts just yet.