Okay so that's a very obscure literary reference but it's one of those days.
The markets are flying pre-open as LEH reported "just" a 3,2% drop in quarterly earnings, indicating the 25% drop in their share price may be a bit overdone.
The PPI is down 1.4% and is up just .2 without food and energy. This gives the Fed the ability to say that inflation is fairly contained, allowing for a greater possibility of a cut. Of course this is insane because, just as oil flew down from $78 to $54.82 between August 1st 2006 and election day, oil magically fell from $78.77 on August 1st to $68.63 on August 23, causing the 1.4% drop in the headline PPI. Of course by September 1st, oil was back at $75 just as days after the Republicans failed to hold Congress and the California energy bill was defeated.
In fact, coincidentally, the drop in the PPI is the largest drop recorded since — October 2006! Will the Fed make moves to pump liquidity into the market? Should they?
Why do we need money, where is it? Well, since 2004 the price of the 20M barrels of oil a day this country uses is up $40 ($292Bn/yr) and the 11M barrels (42 gallons) of gasoline we use is up $1.50 ($252Bn) and the median price of of the 10M homes that are bought each year has gone up over $30,000 (15%, $300Bn). Health costs are up 78% in the past 5 years, food and other commodity prices are also out of control…
So the Fed will pump more money into the markets and where will it go? Back to the commodity brokers so they can have yet another round of price increases at the expense of our nation, our children and our grandchildren who have already racked up $6T in debt under the Bush administration.
"Debt, grinding debt, whose iron face the widow, the orphan, and the sons of genius fear and hate; debt, which consumes so much time, which so cripples and disheartens a great spirit with cares that seem so base, is a preceptor whose lessons cannot be foregone, and is needed most by those who suffer from it most." – Emerson
Foreclosure activity was up 36% in July, up 115% for the year with Florida up a whopping 77% in August alone but let's worry about whether or not we can maintain the margins on the ABN deal so Goldman Sachs (Paulson's old firm) gets their full commission… Wheat prices were up 9% last month, sitll closing limit up with great regularity. So Americans can't live in their homes, they can't eat and they can't afford to drive their cars and, according to the last jobs report, they can't work either, but we're going to force a rate cut so the madness can continue for another quarter.
Oil is up at $81.24 in pre-market trading and Mr. Murdoch's Wall Street Journal is leading with: "WASHINGTON — U.S. wholesale prices tumbled last month on the biggest drop in energy prices in over four years." Gosh I wish I were joking!
Asia didn't get the memo early this morning and the Nikkei dropped 2% and the Hang Seng was flat as the Finance sector felt Northern Rock's pain but the BOE stepped in to guarantee ALL of that bank's deposits, which rallied the Banking sector and the EU has made up most of yesterday's losses.
Nothing matters until we get today's Fed statement, the most important 300 words ever written and we're going to press our puts into the rally, expecting a 100-point+ drop when the Fed announces a quarter-point cut with continued emphasis on inflation concerns. As LEH's earnings and the earnings of the other brokers will bear out, there is not enough spillover for the Fed to do a 180 from their previous statements.
As I posted on the weekend, we hedged out our Oct $135 and $133 put positions by selling the current $135 puts and today that hedge will pay off very nicely. We will discuss an exit strategy during chat, depending on the day's movement but BBY (got 'em) kicked in with great earnings, which should give a nice boost to all of our retail plays.
We still hold the Oct $134 puts naked as well as the $131 puts and they are balanced 5:3 against the Oct $133 and $134 calls but we also have a bull calendar call on the QQQQs with the Dec $50s against the Sept $50s and I very much doubt we'll add 2% to the Nasdaq by Friday.
So we are about as even as we can be going into this afternoon and all we can do now is tighten the grip on our strangle and wait for what we hope will be a market moving event!
Have fun out there!
