Wednesday Rebound

Ah the rebound relationship!

There’s noting quite like it is there?  You just got out of some bad positions, you still carry a lot of baggage so you decide to take a chance on the next thing that comes along that doesn’t look too terrible.  This is no way to select a future mate and also no way to select future investments but it’s pattern behavior for manic depressives and we made that diagnosis for the market this weekend.

Of course nothing is dumber than going back to your ex, but when it’s as scary as it is now to get involved with another company (they ALL seem to have issues and some of them carry SIVs), sometimes it is safer to steer back to familiar waters.

So the futures markets are bright again and one of the reasons I repeat themes here is so you can say, "Gee, wasn’t the futures market on fire on Friday too?"  That’s right, it was only 22.5 market hours ago that we were looking at an open that was over 150 points higher than Thursday’s 13,311 close.  I know, just like someone getting over a bad relationship, it’s hard to remember the good times but I figure 5 days shouldn’t be too much to ask of you.

So here we are off a 13,248 close about to act like a pre-market move to 13,311 is the answer to all our prayers.  Come on people – get a life!  It’s OK to be in cash for a while, you don’t have to spend money on the first security that shows you a little kindness.  Make them prove themselves to you before you rush into a new relationship.  Give them a little something but not too much, see if they’re still there for you in the morning before you start counting on them for long-term gains.  Now I’m not saying not to have some fun, but let’s keep it light and not take these fancy moves too seriously until they are tested.  The promise of a Fed cut is like free beer at the frat house, it puts everyone in a party mood but it doesn’t really solve any problems and it’s a real mess to clean up in the morning.

I’m just saying, the party won’t last forever so think long and hard about what investments you want to wake up with when everyone sobers up!

We’ve got the great productivity numbers (+6.3% with unit labor costs down 2%) that I said I was hoping would be a bright spot on Monday but we’ll have factory orders at 10 along with ISM.  You can be as productive as you want but if no one is buying the stuff you produce, what’s the point?  The ADP report shows people are hiring (and, with labor costs down 2%, why wouldn’t they?) but that has only a loose correlation with the government’s jobs data, mainly because the government does an awful job of collecting it. 

Speaking of our government, Bush had a tough time sticking to his decision that Iran is a nuclear threat in light of the fact that Iran is not a nuclear threat yesterday and even the WSJ had to use the word "flummoxed" to describe the President’s response to questions like "Can’t you be accused of hyping  a threat and don’t you worry that this undermines US creditbility?"  Bush’s response was that (and I wish I were making this up!) he had only been informed about the re-evaluation within the past week. Intelligence officials had told him earlier that there was a new development. But they weren’t being specific until they’d checked it out, Bush said.   Yes, whatever you do when you find out we are possibly 100% wrong about a major policy issue, DON’T INFORM THE PRESIDENT!

Asia had a bright morning with 1% gains across the board, led by a Shanghai rally even as China announced they would shift monetary policy "from prudent to tight" in 2008.  Expect Europe to do the same as the rest of the world is in inflation fighting mode and they are also up a point this morning – it’s a global rebound!  Commodities are leading the way as the dollar dives and OPEC decides to leave output as is since there’s already too much and we have nowhere left to put it but somehow the oil bulls interpret this as meaning there’s going to be a shortage, even though we are back to record inventories with OPEC pumping over 3Mbd below capacity.  I’ve given up trying to find logic in the oil bulls’ positions, I just short into them!

Algeria’s energy minister, Chakib Khelil, said in a weekend interview that it didn’t make sense for OPEC "to be talking about increasing or decreasing [production], because we really don’t know whether the market really demands it." He argued that global stockpiles could rise markedly in the second quarter of next year if demand slumps by as much as two million barrels a day, as some in OPEC predict.

Natural gas storage is so high they are PHSICALLY out of storage space and have been for a month.  If we have a warm winter that’s going to be a very exciting market to short.  ZMan posted a ton of charts last month and they give a great overview of the markets.

So we’re not going to buy into the initial excitement, if it’s a real rally we can get some brokers very cheap but we didn’t hold 13,400 on Friday and that ended very badly so let’s keep level heads into today’s action.  There is no particular reason for today’s rally that wasn’t there in yesterday’s drop so let’s be very careful out there...