Thrilling Thursday Morning

I'm calling this post "Thrilling Thursday Morning" but I make no promises about the afternoon.

We had a great move yesterday, the Fed made some noises one might even interpret as rational and we are getting some great news out of RIMM and AAPL as well as upgraded tech guidance, which can hopefully keep the SOX moving forward today but I'm concerned that OII's bad report coupled with a slip in crude will drag down energy and other commodities and spook the markets again so let's be cautious today.

We get the crude inventory report at 10:30 today along with natural gas inventories and I know I had my windows open this weekend it was so warm so I think they'll be hard pressed for a big drawdown on either side of that market.   I'm liking the EOG $95 puts, now $1.95 ahead of the inventories as well as selling the DIG $104 calls for $3.10, either naked or against the $108 calls at $1.10 as another $11 rise in oil by March expiration is hopefully unlikely and, even then, I'm happy to DD and roll to Apri as there are simply no fundamentals to support this run.

Even T Boone Pickins is shorting oil at this price (I'm not joking, he was on CNBC this morning saying $100 is too much, even though he predicted it)!  We do still have some downside economic news with forecasts for corporate bond defaults jumping 500% over the past 2 years, from less than $10Bn to roughly $50Bn.  This is still far below the $95Bn in defaults we hit in 2002 as the .com bubble burst and the combined terror of 9/11 and the Bush tax cuts hit the economy at the same time, robbing the middle class of their relative spending power and sending corporate profits (big corporations that is!) to record levels.

Stagflation made the front page of the Wall Street Journal this morning as if they just discovered it as they parsed through the Fed minutes.  The Journal, unfortunately is getting to be a contrary indicator these days and, by the time a story hits their front page, it's often over.  We still have this major issue with issuers of auction-rate securities and we won't be out of the woods until someone stabilizes this market as it's scaring the rich folks, who have their money tied up in these bonds and can't get it back as redemptions are based on rollovers that aren't occurring.  On the bright side, this should drive these sideline investors back to more liquid securities – IF they ever get their money back!

As Xian pointed out in comments this morning (from Bloomberg): "Hundreds of auctions have failed this month, sending borrowing costs as high as 20 percent because dealers from Goldman Sachs Group Inc. to Citigroup Inc., UBS AG and Merrill Lynch & Co. stopped using their own capital to support the sales. Regulators, who allowed the manipulation of bids and lack of information to persist even after two probes in the past 15 years, are now watching a $342 billion market evaporate at the expense of taxpayers."

We took our April DIA puts ahead of the Fed yesterday and sold March puts against them but this morning we will take out the March putter and use those profits to roll up "just in case."  I will be liking the QID calls today for the same reason I liked the QID puts yesterday, they have been wonderfully rangy and $48.50 has been a great line in the sand for them and I expect them to open at $49.50 which should make the $48s about $3.75.  Of course you have to be willing to roll down, or just get out if we break $48.50 but I'm not sure I see an immediate catalyst for that kind of rally.

Asia had a less than enthusiastic reaction to our moves yesterday with the Hang Seng falling off a 500-point cliff after lunch and finishing barely flat  for the day.  The Nikkei had a much stronger day and finished near their highs as export growth picked up.  Much like our markets, it will all come down to follow-through tomorrow.  The Asian advancers were driven by commodities but China was again weighed down by financials as the Pudong Development Bank went limit down (10%) for the second day in a row.

Problems in Asia's $2Tn banking sector are GREAT for the US's $20Tn banking sector – as I often say, our goal is simply to be the least sucky place for people to put their money in 2008.

Speaking of sucking, Societe Generale reported a net loss of $5Bn, neatly wiping out last year's $1.8Bn gains and then some!  Not only that but they say this may not be the end: "The purchase of assets originating from SGAM funds invested in credit-type underlyings could continue in the first quarter 2008 and, given the situation in the credit markets, lead to further write-downs," Société Générale said. The bank also confirmed that its corporate and investment bank was hit by €2.6 billion in previously announced write-downs related to its exposure to unhedged CDO's, monoline insurers and residential mortgage-backed securities.  Boy that rogue trader sure does get around doesn't he?  Those guys lost money in almost everything they touched!

Here is a great chart and analysis of Kerviel's P&L for the bank , for all you asipiring rogue traders!

Despite this, as well as news that Dresdner Bank had to scramble for cash to backstop a failing $18.8Bn SIV, Europe is having a strong rebound this morning, up about 1.5% across the board.  Nestle had a great year, with a 16% rise in profits and are raising their dividend, indicating that rising commodity prices are not killing food producers.  The EU cut its growth forecasts to 2% from 2.4%, which should further pressure the little pin that is being pushed into the commoditiy bubble.

MBIA is taking the gloves off in their battle with Bill Ackman, saying: "An initial review of the recommendations for a restructuring of the financial guarantors as prepared by Mr. William A. Ackman of Pershing Square Capital Management, L.P. and presented to the New York State Insurance Department (NYSID) is no more credible than his flawed open source model.  Like Mr. Ackman's open source model, his statements in the media and the barrage of letters he has sent to regulators and the rating agencies — which contain half truths, innuendo and faulty analysis — this proposal is simply a continuation of Mr. Ackman's campaign to profit from his short positions and credit default swaps in the bond insurance industry."

I've been hearing unsubstantiated rumors that US search engine query growth accelerated in January up 23% year over year.  If true, this should be very good for Google, who we bottom fished yesterday at my $500 target but I see no official word of this yet.  From the numbers I saw, it seems Google also increased US market share ANOTHER 10%, putting them near 60%, something that is not anticipated in analyst estimates for '08.  YHOO seems to have 22% of the market and Google's queries look like they are up 37% overall.  This is huge news if true but I got these numbers in an email and have been unable to confirm them but I think they are reliable enough to be worth mentioning.

Let's see what happens today but anything up is good as I'd rather grind our way back to 13,000 than jump up and down several hundred points a day, as has been our pattern for most of the month.