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Buzz Bits: Dow, Nasdaq Close Lower


Your daily Buzz highlights...


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

Bell Buzz - Todd Harrison - 3:48 PM

  • Speaking of foul language, how bout them banks? The BKX, lest you don't see it, is ticklin' the border of Matador City.

  • The retailers also act well, for those of you watching at home. Television's JeffMacke® had a nice feel in this group. I haven't had a nice feel of late. I've had a funny feel. Kinda like that rope in gym class.

  • I had a burger and beer with Macke at Smith & Wollensky grill last night. Good time, except he really believed that all the NYC cops were there to protect him (not Bush).

  • With the (marginal) Snapper in the tape comes the half-price sale in vols (VXO now down 5%).

  • The CRB is off another 1.75%, which is likely why the XAU is off another 4% and the energy patch is slippy as slippy does.

  • If the tape was higher today, don't you think the pundits would push the "crude is down 3% and the market was higher as a result" angle? I bet they would.

  • I've gotta jimmy and jam as I'm on deadline tonight (Tuesday's are always tough) and I have some personal affairs to attend to. Not in a bunny stew sorta way, in a "work to live" sorta way. And, while I'm often a hypocrite in that regard, it's never to late to learn.

  • May peace be with you.


Position in the financials

Randoms - Fil Zucchi - 3:34 PM

  • Gold should find at least some support at the June lows. The problem is that if we get there, the weekly chart will look mighty ugly. Multi-year support does not really come into play until the $450 area. Meanwhile Newmont Mining (NEM) is toying with a 5-yr trendline at $42'ish.

  • The technical setup for equities was for a break-out. Failed moves lead to fast moves. That being said, Boo needs to grab Hoofy by the horns by the end of the week IMHO, or he runs the risk of getting run over. Waffling? You bet.

  • With OPEC all but drawing a line in the sand at $60, I'm tempted to dip into the U.S. Oil Fund (USO). On the other hand, everyone I've chatted with is thinking the same, and mean reversion after the run we have had suggests that we may not stop at the mean.

Position in NEM

Homie Vs. Homie - Adam Warner - 1:44 PM

Interesting divergence in the Homie volatility front. Toll Brothers (TOL) trading as if nothing much will go on as options sit near 52 week lows. Ryland (RYL)? Just the reverse as the options sit near yearly highs.

And earnings timing can not explain all of it. RYL reports near the October expiration, but the option lift is not confined to the near month or two.

Is Ryland, the stock, diverging from TOL? Not really, the relationship between the two has held pretty steady for a few months now.

Position in TOL, RYL

Risk... - John Succo - 12:22 PM

First of all, if there is a coup in Thailand people have no excuse to say that it "wasn't expected."

The probabilities always exist of something somewhere like this happening; the only difference is how people respond to it. The way they respond to it is based on the amount of risk they have.

People did not respond to the hedge fund that blew up yesterday because 1) they are now conditioned to not respond to risk (inductive reasoning) and 2) the leverage that particular fund used is perceived as to not affect the system (this may be false because cross leverage among the dealer system may be affected).

The news of a possible Thai coup however may affect the system more directly and immediately. Hedge funds and even mutual funds have dramatic foreign market risks. They are all short correlation, which means they are accepting risk wherever they can find it to eek out small returns. When a market becomes disrupted, correlation among assets rises (as they fall in price) and funds are forced to reduce risk. This forced reduction of risk is the biggest factor by far in reducing liquidity and increasing volatility.

I remember reading some bureaucrat somewhere saying volatility is dead forever because central banks have everything under control. But this control is deceiving as efforts to control markets ultimately builds a foundation of higher risk in the long run.

Amaranth's Blow-Up - Vitaliy Katsenelson - 12:18 PM

Long-time Minyanville readers know that I am a big fan of a book by Nassim Taleb called Fooled by Randomness, which I believe is a must read for anybody that invests or trades. Every mutual fund or hedge fund, big or small, should make this book a once a month required reading. (No I am not getting commission from sales of the book.)

Amaranth's blow-up would have been transparent ahead of time to anybody who read that book. I suppose there is nothing wrong with making bets on unpredictable events, but adding leverage on top of those bets makes the cost of being wrong too much to bear, as it was for Amaranth investors. We tend to judge events by their final outcome - that is how most consultants judge returns of hedge funds without much of consideration of the hidden risk - a risk that for whatever random reason has not serfaced.

The hidden risk of Amaranth's strategy has surfaced, but we only saw the tip of it. The incentives in the industry are positioned in such a way that if randomness smiles at you (as it did for Amaranth for awhile), you'll make billions, and if it doesn't... well you make millions at the time that your clients lose billions.

Idea Makers - Kevin Depew - 12:00 PM

Interestingly the dollar is right now higher on the day despite bonds rocketing, interest rates down big, weaker than expected housing starts and lower than expected core PPI. Gold is lower as well, what with inflation expectations continuing to be "well contained."

A question that often arises is, why would gold go down during deflation? During a deflationary credit unwind, anything that can be used to reduce debt is sold off. That is why a deflationary environment takes down all financial assets... except the dollar, the one thing people can use to repair their balance sheets. People can't pay their bills with gold coins.

Meanwhile, Scott and I were just talking about the point of recognition where everyone sees deflation, such as the PPI from 2001 in today's Five Things. The spin on deflation among the majority of consumers who really couldn't care less what you call it will likely be "time to repair household finances, increase savings rate, etc." As Scott notes, however, what the average consumer does not understand is what effect that has on a massively leveraged financial system.

Moreover, that's already the spin on it. Look around at what is becoming "hip" and "cool" and "leading edge." What are idea makers talking about these days?

Get out of debt.
Consume less.
Increase savings.
Risk aversion.

It's already here.

Alternative Energy - Ryan Krueger - 11:17 AM

I did an interview with the founder of a socially and environmentally focused research group last week and I came across a few numbers that surprised me. The entire wind and solar industries combined for just over $20 billion revenue last year. Exxon (XOM) pulls in about the same in just two weeks time. That got the interview off to a crude start, but she knew she was talking to a gas-guzzlin' Texan.

To her credit, she reaches out for my firm's opinion from time to time each year because we offer a very different view than the rest of the readers and money managers who subscribe to her research. I just happen to think the brightest ideas in renewable energy are not only a long way off, but they're difficult to invest in, at best. Some of the technology will not even make it to the public markets, because if I'm sitting at XOM or General Electric (GE) or plenty of other companies with more cash than R&D projects, I'm likely to acquire the best and brightest privately before most of her readers have ever heard about them.

What didn't surprise me and what I've repeated in the 'Ville many times, is that the focus on crude oil and gasoline is too crowded at worst, or getting ahead ourselves at best. Electricity and infrastructure are far more investable in my book, than oil. And I'm a long-term oil bull. But, we have more than 2 billion people who aren't arguing about refining margins and prices at the pump because they do not have electricity yet. I closed the interview, and perhaps an invitation back, with a suggestion to look again at nuclear. If you don't like uranium (I might have to scribble another article to change your mind), you could at least consider an "alternative energy" of your own – how about the banks surrounding the mines in places like Canada and Australia? Deposits are climbing. Related businesses and benefits derived from natural resources in these two friendly countries is underestimated I believe.

What you need to know... - Jon Doctor J Najarian - 8:11 AM

Amaranth Advisors' Lose $5 Billion Last Week! I was speaking at Mark Fisher's (The Logical Trader, John Willey & Sons) investment conference in NYC yesterday and you can only imagine the world's biggest independent Nat Gas trader had a lot to say about the impact of the Amaranth melt-down. Suffice it to say this story will not be the last about commodity bets gone wrong.

Warner Music Enters Deal With YouTube - The online video-sharing site, said yesterday that it had agreed to share advertising revenue with Warner Music Group in a deal that authorizes YouTube to show Warner Music videos and user-created clips that incorporate Warner music. The deal brings more legitimacy to YouTube and should be good for Warner Music as well.

Thunder Horse On Hold 'Till '08BP said its MONSTER platform in the gulf of Mexico would not be online until 2008, a year later than previously estimated. The continuation of the shutdown will not just effect BP and crude oil, but Exxon (XOM) as well, as they own 25% of the operation.

General Electric (GE) Expansion Plans in - General Electric says it is planning a rapid build-up of its operations in over the next four years. Areas of concentration will be power, healthcare, water and real estate markets.

Position in BP

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