Thrilling Thursday Morning

Another exciting day in the markets!

We're pretty much neutral position wise and would probably benefit from a nice downturn but we don't like to hope for such things so we'll just say we're well insured.

Did Greenspan derail the rally yesterday or judiciously apply a little pressure on the brakes?  As I said in yesterday's comments: "Greenspan does nothing by accident."

What must be an accident is the negligence of the mainstream media to cover the fact that Shanghai "B" shares, the kind owned by foreigners, dropped 7.9% last night, the third consecutive daily loss, closing at 297.57, down 24% from 371.26 on Monday.  This drop is not reflected in the Shanghai Composite, which lists the "A" shares controlled by the Chinese (not that they would ever manipulate the market, of course!).

All this could be just  a coordinated punishment by "our side," of course, as major economic talks with China yielded little results, an embarrassment to Paulson, Congress and Bush.  Hank Paulson is probably just under Putin on the list of people you don't want to have angry at you – perhaps number one if you are an economy rather than a dissident who can't hold their Polonium.  President Bush handed the China economic virtual portfolio to Mr. Paulson based on the former Goldman Sachs chief executive's fat China Rolodex, and his experience cutting deals there during more than 70 trips to the country.

According to Bloomberg: "On issues ranging from defusing trade tensions with China to overhauling Social Security, the former Goldman Sachs Group Inc. chief executive officer is playing down the notion of breakthroughs. Instead, he's talking about laying foundations for his successors.  Behind the reduced expectations, just a year after he was nominated for the job, is the plunge in Bush's popularity. Largely because of the Iraq war, Republicans lost control of Congress in last year's elections; a Newsweek poll showed this month that the president's approval rating slid to 28 percent, the lowest for any U.S. leader since President Jimmy Carter in 1979."

 Asian markets were down across the board but it really bothers me that the WSJ, who are in a fight to maintain their "journalistic integrity" against the onslaught of Rupert Murdoch (another Billionaire you don't want mad at you) can make the statement "China's Shanghai Composite Index closed 0.5% lower at 4151.13 after remaining volatile through most of the session on Mr. Greenspan's view. The decline follows strong gains over the past three sessions in property and other domestic consumption shares, after China widened the yuan's trading band against the U.S. dollar last week."  Do they even know about the B shares?

So excuse me if I continue to take a little more off the table ahead of the weekend but I'm just not sure I can trust what I'm hearing.  If it's a real rally, we'll have months of fun ahead of us but if it's going to snap back to 12,500, perhaps I should stick to cash for a little while. 

Europe is trading mildly down and no one is buying anyone else of note today and we'll be thrilled to hold our levels at home ahead of the long weekend but Brent Crude is up over $71 on news of a Nigerian strike (priced into our markets for weeks) so we will continue to call $65 the oily line in the sand we need to break if we are really going to stop the slide in the broader markets.

Zman will be watching our energy markets as we head into the natural gas report at 10:30.  We took 1/2 our oil puts off the table on yesterday's dip and sold TSO puts to cover a possible run-up but, like yesterday, if they can't get a rise out of all this global tension, it could be big trouble for big oil.

There's only 2 charts we care about today and Happy Trading joins me in a cash call on the SPX but it's the SOX I'll be watching as it would take a miracle to save the transports with oil up here:

As I said yesterday, we expect the dollar to benefit from an unstable global situation (which we may have caused but that's a topic for another day) but that may not be good for stocks, which are also a commodity in the grand scheme of things.

The 30-year note hit 5% yesterday and that is not at all good if they hold it.  Let's watch gold at $660 and the builders, who climbed on Paulson's word on Tuesday but quickly ran out of gas as reality tends to trump spin in the stock market.

Let's be very careful out there today!