7/1/08 (Israel Attack? Lehman Rumor? ETFs!)

Traders,


It looks like the market held ok for quarter end marks. I really expected a little more to the upside for the marks, but I think between oil, ECB, and the financials it was hard press to do so. At least they all didn’t get whacked hard. However – today we are back and starting the 2nd half of the year and reality is hitting us in the face like a the cold ocean spray of the North Sea.
It is a light volume week and the forces that have been rocking the market will probably inject more movement on the lighter volume.

The financial sector is still struggling to tread water and any investments (bottom picking) in this sector needs to be taken with extreme caution.

Jim Rogers (billionaire investor) has been saying (over a decade ago) that the commodity market is undervalue and in the coming decade it will be commodities and not equities that will be the investment play. That was a decade ago and now that time is upon us. Many traditional analyst are calling commodities a bubble, and while I agree they are high, I don’t think we are going to see a crash. We will probably see pull backs – but we could very well be in the long-term commodities bull market and a rather flat equity market. It is something to think about and any investor should think about adding some commodity products in their portfolio. ETFs have now made it easy for investors to participate in currencies and commodities. Speak with your investment advisors about mutual funds and ETFs in the commodity sectors. This is a good hedge against equities and the dollar.

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Israel attack on Iran – HIGH PROBABILITY

The Pentagon confirmed yesterday with ABC news that the probability of Israel attacking Iran (bombing nuke sites) could come as early as the end of this year. This will definitely put MORE pressure on oil prices as any conflict can and will interrupt supply chains.

The news has put pressure on oil prices and oil looks to be well on its way to $150. (currently $142.30 this morning up $2.20).

I am still wondering what Rupert Murdock is thinking, remember he said if we invaded Iraq we would see oil prices come tumbling down to $20 a barrel. What happened to that idea? Why is no one talking about WHERE all that Iraq oil is going? I would think (if I was president) that I would want Iraq to pay back the war costs via giving our country Iraq oil. Who is getting that oil now? I know where it is going – I just think it should be a topic of the election and more people should be asking the question “Shouldn’t we be getting some of that oil to pay back for the war costs and the lives lost?”

For now – the attack is a high probability and that is going to push oil prices higher!

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Lehman in the teens! – Rumors of a take-under!

The ping-pong game being played by analyst at different firms upgrading and downgrading each other no doubt is very confusing. But at the end of the day the fundamentals and the need for going to the Discount Window has not changed. Morgan Stanley upgraded LEH to “overweight” saying that the company had “solid liquidity” – WHAT? Who are they kidding!!! Maybe it was a “You Scratch My Back, I will Scratch Yours” upgrade. Lehman just recently went to the Discount Window, Raised money, and still has illiquid paper on the books. I don’t mind the up-grade – but don’t use the word “solid liquidity” to describe a company in need of money!

Rumors hit the floor that Lehman has been actively looking to be acquired and the deal would most likely be a take-UNDER not a take-OVER, similar to Bear Stearns type of deal – the stock got hit and broke down into the teens. That spells a very ugly book of business. Let’s look at reality – they raised money, continue to borrow, selling shares to raise money, laid off staff, and are scrambling for funds. If they had “solid liquidity” and have solved their problems do you REALLY believe they would be covertly looking for an acquirer (if the rumors be true)? Of course not – if the rumors are true they are sinking fast and really need more money and are seeing the Discount Window (their last resort to borrow money) closing in September – unless Bernanke can pull a rabbit out of the hat again. I think (provided if these rumors are true) we are looking at the next Bear Stearns. So far David Einhorn has been right – if it looks like a pig, smells like a pig, it IS a PIG!
Investors do NOT buy this stock. Traders – go have fun – GAMMA GAMMA GAMMA!

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Futures Pre-market

The futures are getting hit pretty hard in the pre-market. The spread to fair value is wide. Expect ARB traders to buy the futures into the opening and short the basket. This will put big pressure on stocks at the opening. The oil prices, Israel attack probability, and more financial rumors as the catalyst for pushing futures lower.

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Support / Resistance

The market held yesterday (for the most part) but I chalk that up to qtr. End marking and nothing more. Today we are back into the slide program and since we broke important levels last week we have yet to find a REAL support area. Maybe it’s time to follow Rogers advice?

INDU ????? (I don’t know what the support level is – the futures are showing the INDU down over 100 points at the opening. We could get a bounce – but I am not bottom picking!)

NDX 1800 / 1900 (We could easily get to 1800 today – but I don’t think that is much of a support (just short-term) – we have yet to get to the March lows of 1700 – but remember the stocks in this index made a hyper rally off those lows so they still have a way to drop further.)

SPX 1275 / 1300 (The 1275 is a key area – we may see some buying come in at 1275 but if it doesn’t hold then strap on the parachute!)

RUT 650-680 / 700 (We broke 700 – we are going lower. Next stop 680ish if we don’t hold there – then expect a revisit to the March lows of 650)

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Conclusion

I heard Kudlow say this is a good time to buy, buy AMERICA! What is that guy saying – he has totally lost it. I just hope people don’t put their money behind this guy. Trying to turn this negative news into a positive. It’s time for investors to look at those financial products going up instead of trying to pick a bottom. There are many great products out there that are doing well. Metal ETFs, Agriculture ETFs, Currency ETFs, OIL ETFs, there are mutual funds and foreign bonds. Don’t get caught up trying to pick a bottom in equities. You can go one step further and get short the market buying financial ETFs that go UP when the market goes down (DOG, DXD, SH, etc.) – so there are things to hedge your portfolio and also look to profit in a commodities driven market. Don’t get stuck with an equity long only basket – with NO hedges. So there is good news out there – the Commodity and Emerging Market story. Join the fun!

Stay focused – if you are an investor spend time with your financial advisor and look at alternative products. For all those traders that read this – it is GO TIME baby – the volatility is moving up – there should be some good action. Expect more take-overs and unders. There is probably some panic buying and most definitely mispricing going on. There has never been more opportunity.