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Buzz Bits: Dow, Nasdaq Close in the Green

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



Game Face Buzz - Todd Harrison - 3:48 PM

  • While the breadth, banks and homies are green, the Art Carnage in the commodity space (CRB -1%, on its lows) and attendant pop in the dollar are quelling any bovine inclinations that I might have.

  • Is it September expiration already? Man, time sure flies when you're lugging premium! Note to self--wear a black suit next Friday as we ready for worthless paper burial.

  • And no, I'm not throwing in the towel on the "higher volatility" vibe, particularly with all the front month "negative gamma" out there.

  • With the stochastics getting "less twisty" and the CRB getting a 'bit' oversold, Boo has to appreciate the "other side" of his trade, particularly given the action in the homies and the traction in the internals.

  • And those aren't waffles, my friends, it's just respecting the probability spectrum.

  • I'm gonna spend the weekend celebrating life and surrounding myself with folks I love (evidently, Canadians celebrate birthday weeks!).

  • We often say that it should never take something bad to make us realize we've got it good. Sometimes we need a reminder of that and, for my part, I got it.

  • Have a peaceful weekend, Minyans, and I'll see you on the other side of our requisite two-day respite.


R.P.

Position in financials



Deflationary Psychology in Action - Kevin Depew - 2:53 PM

A bit earlier a financial TV anchor was noting with enthusiasm the perceived consumer benefit that goes along with lower oil prices and mentioned that Unleaded Gas futures were also lower. But in doing so, the first sign of a rising deflationary mindset unwittingly appeared. "Unleaded Gas is also lower this morning so if you can just hold off on topping off that tank..." Yes, if you can just hold off and wait for lower prices.

Just like that we see how quickly a deflationary mindset appears when consumers are so highly leveraged. This is what the Fed fears more than anything else. The psychology of deflation, once entrenched, renders monetary policy moot.

Take a look at this story from Maryland: "The financial incentives that homebuilders are dangling before suddenly reluctant buyers may get even more enticing as the slumping home sales market crawls to 2007," Gazette.net reports.

"[A] price guarantee program, offered by Mid-Atlantic Builders Inc. of Rockville, is probably the first incentive of its kind in the state. When a buyer signs a new home contract, Mid-Atlantic guarantees the buyer gets a break should prices of similar homes dip before the closing. The program eases the concerns of gun-shy buyers, said John Lavery, the company's vice president and director of sales and marketing. ''We found that the concern among buyers was that there might be a better deal later," Lavery said."

That is deflation. Period. So while the Fed talks about "anchoring inflation expectations," the deflationary psychology is already here... in force.

Ask yourself this question: What goods are you worried about purchasing right now, as soon as possible before prices rise? Milk, eggs, paper towels? Gas? Are there any goods you want to buy as soon as possible to avoid the loss of purchasing power? Inflation is most problematic when it pushes consumption forward to avoid the loss of purchasing power down the road. Because consumption has peaked, however, it is not being pushed forward. That is why upward pricing pressure is itself sowing the seeds for deflation. Deflation does the opposite. It pushes consumption back as people wait for lower prices. And that is what the Fed fears most.


Party Pooper... - John Succo - 1:54 PM

By far the most important variable in oil prices is GDP. When the demand for oil goes down it is because the economy is slowing.

Oil gold and transport stocks today are very worried about deflation.

All other stocks are not now worried and are hailing lower oil prices as the end to the consumer's troubles.

In reality those troubles may just be beginning.

Todd has pointed this out several times.


Hang in there baby, it's Friday! - Rod David - 9:37 AM

If Thursday's mid-day rally was a correction of the decline from Tuesday's high, then S&Ps dropped more than enough Thursday afternoon to signal that the decline had resumed.

An opening gap up above Thursday morning's highs would have helped to reject the damning portion of the afternoon's decline. Regardless, extending above Thursday morning's highs through the first hour would at least question whether sellers had yet shown up to play today.

Bounce today or not, this week's drop has done enough damage to require lower lows next week. As for today, avoiding lower lows through mid-morning would make lower lows unlikely before the last hour.


And the beat. . .ing goes on - Fil Zucchi - 9:14 AM

The deflation theme continues to assert itself in the precious world with the Dec Gold futures contract a mere $3 away from critical support, silver down 3% and palladium down 5%.

What I'd really like to know is when that's going to spread to copper, which also has a very iffy looking chart, and by extension to copper equities, where the merger orgy between Phelps Dodge (PD), Inco (N), and Brazil's Vale do Rio Doce has jacked up valuations to levels that assume commodity prices at current prices, if not higher, for a very long time.

Position in PD, gold equities


Taking some money off the table in Treasuries...... - Bennet Sedacca - 8:54 AM

As regular readers know, my firm has been sitting on a somewhat large ( for us anyway...) position in discounted 2 and 3 year Treasury notes for the past few months. We purchased them in the 5.1 to 5.20% range and at levels closing in on 4.70%. We no longer see the value.

My firm is now taking profits as the spread between Fed Funds and the 3 year note is becoming wide, particularly given the comments coming out of Fed officials. We will be content to hide in the very front end of the curve with yields in the 5.1% to 5.2% range. See the chart here for the spread between 3's and Fed Funds. While not at extremes, it IS extreme given the jawboning by Fed officials.

We still maintain a position, just less, as we still expect housing led economic weakness. But I have to wonder if we are not getting to the point of where this is becoming discounted (at least partially) by the shape of the curve.

I have been evaluating mortgage backed and other agency bonds and find the following disconnect. If you buy a bond 75 basis points above 4.70, you are only 20 basis points above cash and 33 basis points above 6 month bills. That seems a mighty big bet on a Fed ease in the next couple of months.

I just wanted to share 'both sides of the trade' as we see it.

Position in Treasuries


What you need to know... - Jon Doctor J Najarian - 8:19 AM

California AG Says Charges Likely in Hewlett Packard (HPQ) Case – In a news conference yesterday the Cal AG said the tactics used to root out the source of a media leak violated two California laws related to identity theft and illegal access to computer records. Stay tuned!

NFL To Stream Video With Yahoo (YHOO) - NFL Game Pass (www.nfl.com/nflgamepass) will allow fans from abroad to watch nearly every NFL game starting Sunday for $24.99 per week or $249.99 for the entire 17-week season.

Private Equity Still En Fuego! According to the WSJ, private-equity firms have tallied seven of the 10 largest leveraged buyouts of all time this year! The dollars we're talking here are staggering and a look at any of the piggy banks of the top executives of the target companies would show those astonishing gains making these men and women extremely wealthy.

Position in YHOO

No positions in stocks mentioned.

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