Monday Morning Markets

I was at the beach this weekend.

This is important as I noticed something interesting.  Many people stake out spots near the water but, as the day goes on the tide gets higher and the people move to higher ground.  Some people go much higher and some people move just a little but there's a certain point where the water crests up onto the beach and sends everyone scurrying for higher ground in a mad dash.

Then it goes the other way!

Just when it seems that the water is going to go higher than it ever went before (and, thanks to global warming it does!) and just when you start to think the next wave will wash over the top and soak everyone, it suddenly stops and an hour later you can't believe you ever thought the water would get that high as it seems so impossible as you watch it pull away from the beach, exposing sand that hadn't been seen since the morning.

The markets are like that.  Frothy highs and "impossible" lows and lots of investors scurrying back an forth trying to guess where the next wave will stop (day traders) while others stake out medium-term positions (deck chair people) and still others make substantial long-term plays (beach house owners) and are willing to ride out even the harshest storms.  While I have fun playing in the waves I guess I have to think of myself as a shell collector, looking for the opportunities that are uncovered once all the excitement dies down.  Let the other people get soaked trying to guess the waves – we can do very well renting deck chairs in any market!

The moon was full and the tide was high in Asia this morning as the Hang Seng rose 565 points (a new record at 21,582 joined by the Nikkei, which gained 178 points, both finishing at the day's high.  Both sides of the Shanghai Composite did well with A shares breaking the dreaded 4,444 barrier and finishing the day at 4,461 (up 3%).  The boost was primarily the result of the Chinese government going to the US playbook and doing nothing about inflation, a very big surprise that allowed SHI to go limit up (10%) along with a very strong energy sector.

Europe is not so excited this morning despite a bit of M&A activity over there as $71 Brent crude is taking a toll on market sentiment.  Flat is great over there though as the markets are skating along at all-time highs.  Europe makes the mistake of including food and energy costs in their economic outlooks but, as every American debtor knows, you have to accentuate the positive and Eliminate the negative.  BHP's $40Bn offer for AA may be back on so that will lead the Dow higher if nothing else.

We have a very light data week with Housing Starts and Building Permits tomorrow, Oil on Wednesday followed by Jobless Claims, Leading Economic Indicators and the Philly Fed on Thursday.  All this is ahead of the Final Q1 GDP reading next week and a lot of inflation data – like I said, there's a lot of frothy excitement just before the tide turns!

Happy Trading is bullish on the S&P and the Nasdaq and It's literally going to be 1,540 OR BUST this week but I've got my pom-poms on for the week as we get ready to catch a few waves and ride them right up to the boardwalk if they'll let us.

ZMan is off for the week but we both think gasoline is pushing it at this level so we'll be watching the refiners closely, especially FTO, who we will be stepping into a short position on as they seem most vulnerable in this market.  We disagree on the meaning of short positions on natural gas being at an all-time high – Z sees it as a contrarian indicator whereas I am of the opinion that, sometimes when everyone bets on the same team, it just means that team is going to win!

ML seized $400M from the BSC hedge fund we said was in trouble last week (I guess they are readers), too bad I got out of those puts!  The very wrongly named "High-Grade Structured Credit Strategies Enhanced Leveraged Fund" scrambled to sell-off $4 billion in bonds backed by risky subprime mortgages to raise cash and assets for creditors and avoid liquidation, the Journal reported.

MCO slashed the ratings on 131 bonds backed by sub-prime loans "because of unusually high rates of defaults and delinquencies among the underlying mortgages."  So while we will play at the beach this week, please don't forget to move your towel (protective puts) once in a while or your virtual portfolio may get soaked!

On a happier note: AAPL say IPhone batteries are performing BETTER than expected, with 8 hours of talk time, 6 hours of internet use, 7 hours of video playback or 24 hours of audio playback – that's a phone, a laptop and my old IPod I can toss in the trash and I will buy one for my kids just so I can have a back-up as I'm pretty sure this thing will become an essential part of my life!  For those of you not already in GLW (we have the Jan $22.50s at $3.80, now $5.20) it should be noted that Apple just announced that "the entire top surface of iPhone, including its stunning 3.5-inch display, has been upgraded from plastic to optical-quality glass to achieve a superior level of scratch resistance and optical clarity."  Ka-Ching!