TGI Thursday

What an exciting market!

This is just like trading in Asia, where 300-point moves can happen before, after or during lunch on a daily basis.  As options players, we are loving this as there are so many rangy stocks and indexes to play that used to take weeks to make 20% but now take hours to make 40%.  Of course you can lose it all that quickly too but, if you hedge your virtual portfolio and play a little of each side – so far, both sides get rewarded within days of each other.

I don’t think this will change much until the market starts ignoring the rumor mill, which is driving investors in and out of stocks with a force I haven’t seen since 1999.  Last night, I talked about the MER and HBOS rumors that squeezed both sides of the Atlantic but the real stampede was the run OUT of commodities, which suddenly turned toxic yesterday just a week after I wrote my article explaining why these commodity prices could not be sustained.

I said that day (the 10th): "The CRB index should be at around 308 (220 in 2002 x 140% to adjust for the dollar) but has outpaced the dollar decline by a whopping 33%, a nice toppy little number that’s just begging for a retracement to 370 very soon."  The CRB peaked out at 422 last week and yesterday it dropped to 388 – so far, so good!

My bullish premise for the market is based on a bursting commodity bubble and hopefully we will finally get a real pop, which will be confirmed if we break below 370 on the CRB which has a fair value (as I calculated in the article) of 308.  That should bring oil and gold down about 25% from here, hopefully to $60 oil and $600 gold, both levels we have learned to live with.  At those prices, with $1Bn a day (20M barrels x $50) put back in the pockets of US consumers, many of the problems that we are currently sweating over will fix themselves (and don’t forget to multiply that $1Bn by 4 for the true global impact on consumers).

Global corporate profits are about $6Tn so putting an extra $1Tn of discretionary income back into the hands of consumers should have a pretty good impact.  Don’t worry about energy losing that money, they claim to make less than $400Bn in annual profits but it’s the financials, who make over $2Tn, that have really been sucking the blood out of our planet.  That’s right, 1/3 of all the profits on earth are being made by the guys who are crying poverty as they are taking a couple of hundred Billion dollars worth of hits because they overestimated how much they could squeeze their borrowers before they broke them.  Boo-hoo!

Nothing could be better for our economy than a collapse of commodities and the financial institutions that manipulate them as it will lead to some much-needed government oversight that will keep a lid on these greedy bastards, at least until they can buy another election and do it all again (every 20 years is about right).  It will be a painful adjustment but we’ve had our economies wrecked by Coolidge/Hoover (1922), Eisenhower (1952), Nixon (1972), Reagan/Bush (1982) and Bush (2002) and we came out the first four stronger than ever so we’re 4 for 4 with one conviction – not too shabby…

Asia had mixed results this morning with the Hang Seng dropping 758 points back to the 21,100 line but the Nikkei climbed 2.5% as it’s all about the POO (Price Of Oil) in Japan.

The OECD lowered its global economic forecasts yet again but did project the US to GROW at 0.1% in Q1, still NOT a recession! "The U.S. economy is now essentially moving sideways, if not contracting outright," the OECD said. "It may be premature to declare a recession, but with the pace of activity so far below potential, economic slack is widening rapidly."  OK, we could have done without that last bit…

Europe was in a good mood until we got our jobs numbers, which dropped them almost a full point in an hour and turned out futures from green to red.  CS issued a warning and the ECB dumped more cash onto the markets with $23Bn in 5-day funds bringing the week’s total to $60Bn.  So the retail investors are being panicked out of shares while the Central Banks are loading the brokers up with cash that they can buy stocks with.  These are the things that make you go hmmmm.

I will point out that options expiration week last March was the bottom of last year’s sell-off and the situation was not too different as oil "crashed" from $63 to $51 and the Dow fell from 12,795 to 11,939 and everyone said the world was ending but that was 12 months ago so who would ever think we’d fall for the same BS again – right?

We like to think we’re not that stupid but several Trillion dollars are being bet on the fact that we are and if the markets shoot back up next week then you’ll know, unlike our President, we can get fooled again.  We’ll have to wait and see but I’m still optimistic that we have seen a bottom to this market.

FDX gave a pessimistic forecast based on high fuel costs and a weak economy, if they are wrong, this is a hell of a buying opportunity.  The WSJ has gone 100% negative on the front page again and that’s a good sign to me and we’re going back in on AAPL over the weekend but we’ll be taking the profits on our oil puts as you never know how a long weekend will treat you. 

I doubt I will be shaken off our general position of 50% coverage with April calls over the weekend along with a healthy dose of Index puts but we’ll be selling DIA March $121 puts at the bell to pick up the premium as I think we’ll at least hold the line today.

Have a great weekend!