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Buzz Bits: Dow and Nasdaq End Mixed


Your daily Buzz & Banter highlights.

Editor's Note: This is a small sample of the content available on the Buzz & Banter.

Bye Bye Miss American Pie - Mike Mish Shedlock - 2:58 p.m.

Baker's Square parent files bankruptcy.

Baker Square restaurant owner Vicorp Restaurants Inc. and its corporate parent VI Acquisition Corp. entered Chapter 11 protection Thursday, a day after closing 56 of their 306 company-owned restaurants.

At a hearing Friday, Vicorp will ask Judge Kevin Gross for permission to tap up to $17.5 million of the loan on an interim basis pending final approval of the full facility. Without immediate access to the funds, Vicorp said it wouldn't be able to pay its vendors and its 11,000 employees

Restaurant closings are just what one should expect to see as consumers slow discretional spending. Competition between chains all attempting to maintain market share will intensify. Increased completion will mean reduced prices, reduced margins, and lower profits at restaurants across the board.

This pressure comes on top of food prices that have been going up. More restaurant closings can be expected, but even more important are the across the board layoffs or reduced hours that are coming as consumers throw in the towel. Today's jobs numbers are a hint of what's to come in this sector.

Likelihood of a second half recovery is extremely slim, stimulus package or not.

Wahhhh? Moooo! - Todd Harrison - 2:36 p.m.

  • We don't "do" rumors in the 'Ville and, in fact, I'm not even hearing one. But through the "you can learn a lot just by watching" lens, something doesn't seem right with Washington Mutual (WAMU) the killer whale.

  • It's not for everyone but I picked at some financial puts under while watching the whale and screaming "Ready, Fire, Aim". I don't plan on going home with them but I figured it was worthy of a schnitzel as we tied up the week.

  • I'm picking back at some of the Baidu (BIDU) fade (against the $300 level) because I'm a trader and that's what traders do. Well, that and enjoy restless nights, manic mood swings and receding hairlines.

  • I knew I was a contrarian but I didn't know that meant I would fade the MV Weight Loss Challenge. I mean, how else would one explain my incessant appetite today? Pass me another Chipwich as you figure it out.

  • Jeezums, there sure are alotta Tar Heels in the 'Ville. Good luck, Yo.

  • Gotsa hop. I'll be back before you can say "kumquat" three times fast.


Position in BIDU

The Fear Trades - Minyan Peter - 1:57 p.m.

Sally's piece yesterday in the commodity space highlighted rioting in the Middle East and Asia because of higher and higher commodity prices.

Juxtapose that to, until this past week, higher and higher credit spreads in the US financial markets and you have two great, albeit seemingly contradictory, examples of what Todd calls "inflation in the things we need".

What I find most interesting, however, is that left to their own devises both the commodity markets and credit markets will end up with the same result – hoarding of an apparently "scarce" resource. And, as Irving Fisher, in his 1932 piece "Booms and Depressions", wrote "Everyman who hoards does it for his own protection; yet by hoarding he aggravates the very condition that started his fear."

In the United States, the Federal Reserve and Treasury are working to offset fear through lower short term interest rates and massive liquidity. In Thailand, the government is trying to address fear by imposing export restrictions on rice. And in China, the government is raising interest rates and curtailing lending activity. And I could go on.

But recognize that in their own way, each of the governments is acting in a way that is entirely protectionist and all of these actions represent government manipulation of out of balance markets. Further, as tempting as it may be to play "commodities" or "financials" recognize that both are the opposite sides of the same "too much cheap credit for too long" coin.

Finally, if truly undoing the fear trade in the US credit markets is going to take extraordinary measures by the Fed, realize that the same will be true for the commodities markets. And whether Asian nations have the courage to slow their economic growth accordingly remains highly uncertain to me.

Positions in SKF, SMN, DBA, DBC options

That Sinkin' VIX - Adam Warner - 11:46 a.m.

So I got this question in email:

"Adam, what do you make of today's events? I was expecting a volatility lift after today's bad news on jobs (among other things), but VIX is down 1.5%. Any thoughts? --Mookie Wilson"

OK, I may have taken liberty with the name.

Anyway, think of a day with a Big Number or a Fed Meeting in the same way you would think of a stock with earnings due. Before the announcement, options volatility ticks up as the market anticipates a gap one way or another. After the earnings, the stock probably gaps, and the options tank in volatility terms. The *bet* is whether the stock gaps enough to offset the inevitable decline in volatility.

That same dynamic happens in the market. Even though the VIX acted lousy all week, it would have acted even worse had their not been a News Event on Friday. Today's dip in the VIX is simply a modest pricing down of options now that one piece of uncertainty (the Jobs report reaction) is out of the way (and a weekend is now upon us).


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