Thrilling Thursday Morning

So far, this has been the least rewarding bottom fishing we have done.

I'm happy with the picks we've made this week, happy with the companies we picked up, happy with the prices we paid but not happy with this prolonged visit to what used to be a spike low in the market.  Back in November, when the S&P fell to 741, we spent 2 days at 750, falling from 800 and returning to 800 the very next day.  We broke 800 on Tuesday and just sort of laid there yesterday – if we can't recapture it by tomorrow, the trend will not be our friend.

It's scary to buy when the MSM is telling you to panic.  We went with DDM and FAS and XLF and DRYS among others in yesterday's trading as I maintain that there should be a floor on financials, especially with over $1Tn in additional government assistance announced this week as well as Fed minutes which indicated that the FOMC is much more concerned about deflation than they are about spending too much money to pump up the system so we can expect no end to the amount of money they are willing to put into play to kick-start the banking system

Bernanke spoke at the National Press Club yesterday and said: "If we can take strong and aggressive action, including the Fed's actions to try to improve credit markets, I think we can break the back of this thing and that we will begin to see improvements in 2009.  If we fail to take adequate actions, the situation would continue to deteriorate."  Clearly the administration is backing "strong and aggressive action" and the Fed is projecting a possble 1.3% drop in GDP in 2009 but is already projecting a 2.5%+ rise in 2010.  This is not what the markets are pricing in – the markets are pricing in something along the lines of Japan's no-growth "lost decade" but our government has already committed $9,600,000,000,000 (70% of a year's GDP) to boosting the economy – 5 times more than all the stimulus programs put in place by Japan, EVER.

Worry about hyperinflation (we have been since gold was $700), worry about more commodity bubbles, worry about government waste but to trade as if this massive commitment of capital will not make a difference defies logic.  This is like going into a classroom where the teacher just gave each student $100 and predicting candy sales at the school store will remain flat or decline.  What is interesting about the markets currently is the way investors simply refuse to believe that $9.6Tn of stimulus will make a difference and the same Fed data that used to move the markets with even a hint of negativity is now being completerly ignored when the outlook fails to paint the same disaster the MSM is pushing day and night.

Obama is committing $20Bn to solar energy and our entire solar industry had about $5Bn in sales last year yet SPWRA, WFR and other's continue to sell off.  $46Bn was authorized for highway construction and other big infrastructure project and CAT is at a 6-year low along with TEX.  $4Bn was granted to law enforcement for equipment and hiring yet TASR, with total sales of $100M is down 50% from 2006, when they had $67M in sales.  $23Bn is committed to increasing broad-band access around the country and CSCO, who make 65% of all routers and have $39Bn in sales, is trading 40% below 2006 levels, when sales were just $28Bn. 

Essentially, this market is pricing in many years of DECLINING revenues and the healthy babies have been thrown out with the bathwater.  To some extent, we can't fight the greater trend and that's why we are taking mainly hedged positions until we see some real improvements but days like yesterday make it very tempting to just go long on our entire buy list and wait for sanity to come back to the markets.  AXP for $13.72 is an example of one that was so cheap we had to buy it naked yesterday during member chat (11:24). 

FXI was a hedged pick from yesterday's morning post and they did not disappoint with a nice gain off the open and Asia held flat this morning with the Hang Seng holding that 13,000 mark, the Nikkei matched the Dow at 7,557 and the Shanghai gained a point to 254.  Bombay held 9,000, finishing at 9,042 and THE BALTIC DRY INDEX GAINED ANOTHER 4.4% (yawn).  DRYS was our other pick in the morning post and we got a ridiculously low $3.75 re-entry in the morning but that one we hedged as the moves of this stock are inexplicable!    Both the BOJ and the PBOC have signaled a willingness to provide additional stimulus as Asia's growth forecasts are revised downward to "the low 5% levels."  So the US and Europe down about 1.5% and Asia up 5% – not quite the end of the World is it?

Europe is having a small rebound ahead of the US open as Sarkozy showers aid on his striking people and the UK tallies up a $1.4Tn hit to the public debt as they classify RBS and LYG as public-sector entities, putting their liabilities onto the treasury's books.  Economists said the falling tax receipts and rising spending could force Chancellor of the Exchequer Alistair Darling to raise his already massive borrowing forecasts for coming years. "Given the rate at which the U.K. public finances are deteriorating…it is frankly anyone's guess as to how high the public deficits may go over the next couple of years," said Howard Archer, an economist at IHS Global Insight.

Not very surprisingly to my readers, the PPI jumped 0.8% in January (0.3% expected by the usual idiots) despite declining fuel prices as the first round of stimulus starts slowly working it's way through the economy.  Wholesale inflation fell 1% so it's a demand-driven increase and a huge reversal of Decembers 1.9% drop in PPI.  Even the "Core PPI" was up 0.4%, 4 times the 0.1% expected by the experts who assail us non-stop on the MSM and will scurry into their holes today until next week, when they will roll out their next round of totally wrong predictions that will move the markets.  Prices of passenger cars rose 0.3% on the month, while light truck prices advanced 0.5%. Prices of communication and related equipment rose a record 1.3%, while pharmaceutical preparations jumped 1.1%. In contrast, food prices were down 0.4%.  Deeper in the production pipeline, prices mostly fell, suggesting soft wholesale-price readings in coming months. Prices of raw materials, known as crude goods, slid 2.9% on the month, while core crude goods prices advanced 0.1%.

Unemployment holds steady with another 627,000 people losing their jobs and my speculative play of the day is SU as Obama seems very interested in supporting Canadian oil sands and SU should make a nice, long-term investment.  At $18, you can sell the March $17.50 puts and calls for $3.10 for a net $14.90/16.20 entry, not a bad spot to scale in for the eventual recovery of oil.  Speaking of oil, we went long yesterday on that ridiculous sell-off and we'll see how that $37.50 line holds up.  Don't forget inventories are at 10:30 and this should be the first week in ages when we have less than 3M barrel build as imports have slowed considerably, probably down 3M this week so not a big reason to rally but any reason will be taken by the energy patch today. 

It should be a fun day – let's watch our levels and see what sticks!