Sorry, no Wednesday wrap-up as an emergency came up
Yesterday went pretty much as expected, unfortunately it went as expected by us on Tuesday but we were able to recover quite nicely as we did maintain a healthy degree of skepticism during Tuesday's "rally."
You'll be happy to know we got our 10% back and more in the STP and I did learn something and hopefully have a better put/call mix on the DIAs. As of last night, we're left with:
- 100 OCT 133.00 DIA CALL (DAWJC)
- 100 OCT 131.00 DIA CALL (DAWJA)
- 200 SEP 133.00 DIA PUT (DAWUC)
- 200 OCT 132.00 DIA PUT (DAWVB)
- 200 SEP 133.00 DIA CALL (DAWIC)
- 100 OCT 134.00 DIA PUT (DAWVD)
Still a Dow strangle but much more even than before, a little heavier on the more expensive, longer-term puts. Also, I made the call to get to more cash yesterday as the combination of weak ISM numbers, PATHETIC home sales (down 12.2%) and a beige book that gives the Fed little reason to ease left us with far less open calls to cover.
My general impression is that the markets will go down but we have to look out for some short-term silliness. The ECB gave us some silliness this morning by dumping another $57Bn into the money markets, a move that makes me more worried than not as this seems to be pretty drastic coming on the heels of $300Bn that's already been flushed through the system. Even worse, the bank said it received $124Bn in bids on Thursday, meaning that $57Bn ISN'T enough! As I said in yesterday's comments: "Deep, deep problems somewhere, deep enough to panic the CBs of Europe and they are only feeling the ripples from 3,000 miles away – we may just think its not so bad because we are sitting in the eye of the storm but that just means we’re screwed no matter which way we go…"
There's a saying that goes: "Where there's smoke, there's fire" so I wonder what the expression should be when you see Federal firefighters scrambling from all corners of the globe an turning on the hoses. Perhaps we should say: "Where there's emergency pumping of liquidity coming from pretty much every CB on the planet, there's probably a planetary financial disaster."
The dollar dropped sharply yesterday as Japan's Financial Services Agency: "has been stepping up its vigilance of firms tied to the subprime market. Agency officials have been meeting with employees at banks, securities houses and insurance companies to seek details on their investments in products tied to subprime mortgages and have required some major banks to assess losses they would suffer if the subprime-related securities they own turn sour." Translation – this will begin unwinding the carry trade but can be immediately devastating for those who borrowed yen to buy mortgage-backed securities as the "safety" of those loans will be called into question. This has the potential to knock a few hedge funds off out of the ring.
Asia was mixed in today's trading with the Nikkei up 98 and the Hang Seng finally taking a break but down just 18. Bush is in Australia and is meeting with Hu to talk about what, I don't know but Abbot and Costello could do a better job of coming to an agreement on a proper currency float than these two. Also on the agenda is trade, global warming and Barbie dolls, so it should be an interesting meeting of the minds as we finally hit on a topic Bush, a father of 2 girls, can relate to.
In addition to the above-mentioned largess of the ECB's 5th money dump of the month, both the ECB and the BOE threw us a huge bone by holding their rates steady with the EU rate fixed at 4% and the UK holding their rate at 5.75%. The BOE also said it was ready to turn on it's hose with about $9Bn to be offered to banks at the discount rate next week. According to the WSJ: "European banks remain extremely wary of lending to one another, largely because of a lack of information about which banks could still face losses from investments in the U.S. subprime market. That reluctance has brought interest rates on the loans bank make to each other to record highs, which could translate into higher borrowing costs for firms and consumers."
In a nod to how unsettled markets remain, the Bank of England released a statement with its decision, something it rarely does when it leaves interest rates unchanged. Noting that "heightened concerns about a variety of asset-backed securities have led to disruption around the world," the bank stressed that its primary responsibility is keeping inflation at its 2% target, and that its 9-member Monetary Policy Committee "discussed these developments and other economic data in terms of their implications for the outlook for inflation. It is too soon to tell how far the disruption in financial markets will impair the availability of credit to companies and households," the bank said. But inflation pressures, for the time being, "remain somewhat elevated."
The European markets were not elevated by the news and had fallen off sharply since the morning's open led lower by banking stocks, which is in-line with my take from yesterday in my 2:05 comment after getting our first look at the Beige book: "Look for housing sector to fall now including brokers, so our plan is still 80% cash, we should have some good buying opportunities when this bottoms but anything you don’t love should be sold." The decision of the banks to hold has turned them around and our retail sales report should give them a decent close and we will be watching that finish with great interest.
Oil prices are at their month's high at $76.40 ahead of inventories today and ZMan and I will adress the nation at about 10:25 on Market News First with our live energy report so tune in for that nonsense. Projections are for a smaller drawdown (about 1M barrels net) than last week's massive draw but this will give us our first real indication of how summer driving season is winding down. As I mentioned earlier in the week, this is the last harruh for demand before the big fall drop-off so they'd better get a good one.
Last week in our newscast, ZMan and I made call plays on the XOM $85 calls, the VLO $70 calls (and '09 $75 leaps), the TSO $50s and the XLE $70s, all of which doubled by Friday and on Tuesday I was back on MN1 calling a top and looking for a reversal of that position to the put side so we'll see if we can have our cake and eat it too. Right now, our biggest member position is the XOM Oct $85 puts at $2.31, a position we rolled to after an unsatisfactory few days holding the Sept $85 puts.
Good news in the US – the rich folks are shopping! SKS reports a whopping 18.2% rise in same-store sales for August, well ahead of rosy 9.1% estimates for the luxury chain. Retailers across the board turned in good reports with WMT posting a 3.1% gain, more than double the 1.5% estimate given by professional analysts who are paid to know these things. We'll see if this makes yesterday's 11:57 SHLD play a winner where I said: "Did anyone notice SHLD? Down $6.50! I’m took the money I made off my $145 caller and rolled my Jan $170s to the Oct $150s at $5.50 as I’m done with this trade if it drops to $4 anyway and I have a pretty good chance of a double here on a recovery. XXX on a good Beige Book."
Do the US markets have a chance of a recovery? Why not, we recover pretty much every other day. Let's try to cut through some of this noise and see if we can find a recovery that sticks so we can throw some of our cash at it. I got my Google $125, which I have long said was an imperative stamp of approval for a real rally and now we have an opportunity to play Apple to the upside as they went down despite the release of an exceptional new ITouch that is already on my Christmas list.
We're back to watching the S&P closely as Happy Trading and I did not like the harsh rejection from 1,490 but we should get another upside look today:
Gold looks ready to test $700 and oil may run up to it's all-time high if we get a big draw today so party on Wayne, and party on Garth but for goodness sakes, please be careful out there!
Sadly, we bid farewell to Luciano Pavarotti today, one of the greatest voices of all time and a pretty cool guy, who didn't take himself too seriously and made the high art of opera more accessible to the masses, he will be greatly missed.
"I would like to raise money for the kids from the world. To do that, the only way, it was to call pop singer. If you call pop singer, you can sell the ticket." – Pavarotti
