Summaries from Gary K and FSO

Art Cashin with UBS floor operations on the NYSE, is interviewed each morning just before 9:00 a.m. He's a terrific combination of war horse experience and straight talk. He commented that this was one of strangest markets he's ever seen. Talked about HF managers still being in pampers and unaccustomed to bear markets; accordingly, they were weak short holders.

I've been watching the VIX. From Bloomberg:

The Chicago Board Options Exchange Volatility Index rose 14 percent to 31.16 for the biggest advance since Jan. 17. The so- called VIX, which tends to increase when stocks fall, has gained 80 percent in the past year.

I sold my CNI APR 50 puts for a 50% gain. I still have my BNI puts (APR 80's). It may have been early on CNI, but with the VIX spiking, I thought that I would take advantage of the rich premium. The strength in BNI still surprises me. Yes, I know that Warren Buffet has been increasing his stake, but he was also in HMO's. In my view, he was buying at the top. (I know a bit about this sector.). I must confess that I do not know so much about rails, but from what I've seen from their financials, they've not demonstrated the growth or pricing power that seems to be widely touted. Positive earnings have come from cost reductions. The rails have been wrapped into the commodity story. We'll see how it works out. I made a gain that I was happy to take.

I took small positions in WCG and WLP in my retirement account (to diversify out of money market). I think that given the drop, they have more upside potential than downside. If I'm wrong, it will not be lethal. I also took out a small position in URE (double long the IYR). With an interest rate decision close, that could be a near term catalyst for a pop; but I cannot say that I'm enamored with the fundamentals.

In my spec account I have DUG and UYG. I'm re-thinking my short position in OIH through DUG. OIH held up better on Friday than I expected. That is telling. I'll present that thinking in another post. That account is just north of $20K. It has been volatile, and I could have managed some positions better (one being SMN which I gave up a $1500 gain that could have been realized the very next day had I stayed in my SMN position). Nevertheless, I cannot say that I've been disappointed. But I will be sorely if by UYG and SMN go down. And they both could in a doubly bad way!


Comments from Gary K's 03.14.08 radio show: He does his expected rant about the BSC--I'll not regurgitate that! Here are paraphrased comments:

In bear markets, things go down to unfathomable levels.

Stay out of financials;

It is getting ugly now;but he's looking for stocks that are holding up well. (e. g. MA).He's gearing up, because everyone is negative and bearish.

It's okay to get in a little late; it's never okay to get in too early.

Looking for characteristics of a new bull market.

• In this down day, AAPL, BIDU have refused to go lower. These stocks have held tight. Including MA. Unbelievable relative strength. RIMM above 50DMA. Western Digital, some commodities have also fared well.
  

When the bear market is over, we will break these lows to the downside and wash out weak holders.

I repeat, we are still going to break these lows, but I'm going to watch what isn't going down.

I don't like it when the crowd joins me; everyone is bearish and depressed.

Bear market could last another 2-3 months, or another year and a half.


Odds favor we'll break the lows and wash out alot of people before any meaningful turn comes.

When the market ultimately turns, no one will want to get in. I will.


Am I turning bullish. No. I just have to prepare.

Gary also mentioned Barton Biggs' (a Wall Street legend) comments, and did a little internet search. Doug Kass wrote an article on TheStreet.com, "Where Have the Fundamentals Gone?" that would be worth your time reading. You can find it here. What I want to call your attention to is the perfectly wrong-headed advice that was given. Of course, this advice could have turned out to be right. The point? Had you taken the advice, you would have lost money as opposed to missing out on a rally. I urge you to take a moment to read this brief article. I like Doug Kass alot. He tends to have a bearish bent and sees the "warts and all".

I did watch AAPL yesterday and thought it looked strong in a down market. Also, the HMO's were holding their own after their precipitous drop.

The next time you are tempted to believe that the market is a perfect discounter, I want to point out that all of the risks were known more than a 18 months ago, and became very clear 7 months ago. Nevertheless, financial and brokerage stocks remained relatively strong. Off their highs certainly, but not appropriately discounted. One could argue credibility, that the market may have over-discounted the problems. I don't know, but it is a mess. Now I'm getting ready to listen to FSO. I'll summarize those comments below:

Well...this isn't going to make any of us feel better. We may all need a lithium drip prior to listening to any financial program! I would encourage you to listen. Comments from Jim Puplova (JP) and Frank Barbera (FB). I've never heard FB so negative. All comments are FB except as prefaced by 'JP'.

• Credit situation has been relentless since last August.
• Moves have taken the market to technical extremes that we've never seen before--to a dark point of reckoning. We've arrived at proverbial Y of the most epic nature.
  
• Anything technical has been trumped by fundamentals; message of the market is that the US has fallen into a liquidity trap from which there is no way out.
• Rising commodity price is acting like a tax on the economy.
  
• Fed easing is pushing us toward an economic collapse.
• JP sees slow death of consumption. If COL goes up you cut back on discretionary spending.
• JP Thinks we will go through a series of bailouts. Gazillion dollars in cash.
  
• If you look at the low bond yields, it is the last great bubble; end of the recycle trade, artificially low yield was a by-product of OPEC and Asian recycling. Both trades have gone away and reversed to negative. What has supplanted that capital has been the fight to quality from the credit crisis. With a negative net yield, at what point do they move higher? When that happens it will be 'game over'. At that point you are in a real collapse.
  
• JP discusses monetizing debt through world savings (ours or others) you are able to export inflation.
• I see that in light of all the failures this week, if you look at fed financing debt with savings, you can export inflation.80% probability of a full point cut--If 1% or even .75% cut, USD will chain react to the downside. Producing higher commodity prices. Fed cutting aggressively makes the recession worse (due to commodity increases). They are pandering to Wall Street and the banks to put on a positive carry trade for the banks to re-liquify (over a long period of time). The problem here in trying to help--crippling the economy in two ways: crack spread will likely widen We are not currently feeling the effect of $108 crude (or 120-130 several weeks out). These high energy stocks will effect business and spending. Lower rates acting like a tax. Fixed income savers are being "taxed".
  
• Next couple of days could be a fatal juncture.
• Volkers policy of high rates to protect currency to cause positive real rates, but would cause industries to correct.
  
• These measures are not allowing the necessary corrections (e.g. in housing markets). We are sacrificing our currency to avoid correction. The lender of last resort has to protect its credit.
• Housing market needs to correct.ONce that stampede gets started---where the dollar can go could just be getting started. I hate to think what this world could look like , if they cut sharply and we revert to a cycle of lower dollar, higher gold, higher oil--will crush the economy.
  

I'm breathing deeply to keep from hyperventilating! Cool heads must prevail, but at the same time, who wants to have their head in the sand?!! I found the discussion about bonds being the next bubble very interesting. It seems to my amateur eye that bonds have very little upside potential, and the flight to quality has depressed bond rates. If the currency is to depreciate more--and I had hoped that we might be bottoming, but I've abandoned that hope--being in bonds will be a money loser two ways.

• Way 1: There will be a loss from currency depreciation;
• Way 2: There will be a loss from negative real interest rates.
  

Wondering out loud.....I've expressed concern here about the safety of money markets. If the USD is to depreciate further, then perhaps the safest place to be is in a foreign currency ETF. I did put some money aside in FXA. Regarding following up on bond funds, I'm putting this off, because I don't think that I want to be in bond funds for the aforementioned reasons.