Thursday, June 05, 2008

Buying Frenzy

I haven't been paying much attention to the market during the day recently as other commitments are making more demands on my time. When I turned on CNBC just after 4 pm today, I was quite surprised to see how well the market did. The breadth was very positive, especially in the up/down volume with the split being about 85/15 to the upside on the major exchanges. Gains were made in almost every sector, with oil notably up over $5. There is such a thing as having too positive a tape however, as the activity smacks of a short covering rally. For some reason, this particular passage in a recent Ken Heebner interview (worth reading in its own right) came to mind.

Immediately Heebner is peppering Fox with questions about where all this sovereign dough is going, wondering, for instance, whether Goldman is now recommending "short-busting" strategies to its worldwide clientele. (Short-busting involves trying to drive up the prices of stocks that a lot of investors have sold short.)

Speculation aside, I think we're not quite out of the recession woods yet even though I believe the market will end flat to positive from here till year end and that the bear market won't resume in force until 2009. For one thing, I think the retail figures released this morning was telegraphed by the expansion in consumer credit and reflects spending/pre-spending of the stimulus checks. The effect will temporarily mask the real and deep-seeded troubles in housing and credit markets. Plainly, in this election year, monetary and fiscal policies are geared towards "rescuing the consumer", "alleviating the pay at gas pump", or whatever catch phrase of the day may be. Ruefully, I believe some rule change restricting the "speculators" in commodities will also take place. It will likely produce an excellent buying opportunity :-)

My most recent action as disclosed in the last post was selling covered calls (all out of the money) on a number of energy and base metal names in my portfolio and parlaying a part of the premium into XLB puts. The worst that can happen were the market to rally much from here is that some of my core positions will be sold at prices above or close to their highs -- an outcome that I can easily live with.