Seeking Alpha
Profile| Send Message|
( followers)  
Well we made it through the State of the Union, now let's see about the state of the markets:

The Nikkei posted another 6-year high (yawn), and China is growing at 10.5% (yawn), yielding a 50% increase in GDP over the past 4 years. Much like Google, China is bound to run into "the law of large numbers" as it moves up the ranks to become the world's 4th largest economy, behind Germany, Japan and the U.S..

It's kind of funny that no one ever talks about "shocking" increases in German oil consumption or Japanese fuel use when both economies are still substantially bigger than China's. Of course, all three combined are still just half the GDP of the U.S., now chugging along at $13T per year. It needs to be remembered also that China's per capita GDP is just $2,000, compared to $42,000 in the U.S. and $35,000 in Japan, so when you hear about the "stunning" 10% growth, it's really only enough money for you to have dinner and a movie with the family.

I was going to say, "unless you're a Chinese reader," but then I remembered I don't have any Chinese readers as this Website is (proudly) banned in China! That's right, one of my traveling readers wrote to me that the Chinese censors have deemed my content "inappropriate" for 1/5 of the world's population!

I think it will take a while for them to catch up to us with that attitude!

Another interesting Chinese attitude is the continuation of the "one-child policy," limiting urban families to a single offspring and rural families to two. This has led to an imbalance of 118 boys for every 100 girls -- hmm... 100,000 Chinese millionaires with just one offspring (probably male) who can't find a girlfriend? My daughters say "Hen gao xing yu xian ni!" boys!

Europeans can have as many children as they want - they just don't seem to want to anymore. Europeans average just 1.3 children per family and their population is aging and declining, putting their "Entitlement Crisis" years ahead of ours. That doesn't seem to bother the DAX, CAC, FTSE or the LSE which all moved up nicely in relief that Bush didn't declare war on anybody this week.

Speaking of the LSE, they are doing us a big favor by putting pressure on the Nasdaq to "put up or shut up" with a real offer as they are getting annoyed with all the games. This may force Nasdaq Stock Market Inc. (NASDAQ:NDAQ) to up their bid and give a nice boost to our $35 puts, currently $2.40 (up 41%).

Our American futures market is chipper this morning, and I have to give some credit to Bush for stating the obvious (something investors seem to miss):

A future of hope and opportunity begins with a growing economy - and that is what we have... Unemployment is low, inflation is low, and wages are rising.

Before you get all misty eyed and go into a patriotic stock buying frenzy, let's remember that we are, for the most part, in worse shape than Monday, and we still need to break UP -- not just hold these tentative levels. We had a nice round of earnings last night, the S&P is on track to post a cumulative P/E of 17.3, far lower than last Q4s P/E of 18.7, and the projections for Q1 '07 are shaping up to be 16.5. So, whether through growth or buybacks, one way or another stocks are getting cheaper -- despite the sticker price!

No excuse will be given for a half-hearted rally - we want to see some numbers and we want to see them now!

US Markets 24 01 2007 Chart

We need to be careful with oil today. My previous post on Morgan Stanley (NYSE:MS) and Goldman Sachs Group Inc. (NYSE:GS) pulling out all the stops to prop up the market shows how high the stakes are getting and how far the roaches are willing to go to prop up crude prices (which is a polite way of saying extorting an extra $100M a day from the American consumers to line their own pockets).

I said they would try to pump oil up to $55 ahead of inventory, but I didn't know they would be so desperately obvious about it as they were yesterday! Bush cooperated by giving the oil bulls a promise that he would do everything in his power to run the same game plan that worked last time -- filling the SPR. Since the current SPR is already full, Bush is going to build another one (which he will also refuse to use when oil is $75 a barrel), and fill that full of 750M barrels of oil no matter what they are charging.

While they say they will only fill it at a rate of 3Mb per month for 20 years, what they are really saying is that they will set these wheels in motion and, if the energy companies pony up enough money to put the Republicans back in the White House, they will be able to repay them by using even more of our money to purchase vast quantities of oil and stick it in the ground.

I almost fell off my chair when Bush rolled out this baby of a mega kickback program for all of his Dad's pals while blasting the rest of Congress for slipping in entitlement programs. It's almost like saying, "Why rip off the American taxpayer for millions when you can force them to buy an extra $41 Billion in oil without even having a Congressional vote?" The message from the President -- "Dream Big!"

He also gave a big, heavily subsidized hand to the agricultural lobby (the Republican's heartland base) by pushing what amounts to a war-level emergency build in ethanol production, which will impact the price of pretty much everything you eat in order to (theoretically) save a buck a gallon on gas!

From the WSJ -- Myron Ebell, director of energy policy at the Competitive Enterprise Institute: "Bush's proposals amount to a giant step back from the goal of a rational energy policy. Instead of increasing affordable and reliable energy supplies, tonight's plan would raise gas prices on consumers while making the U.S. less economically competitive as transportation costs rise... The real beneficiaries of raising the mandatory use of alternative fuels from 7.5 to 35 billion gallons per year would be special interests, because consumers would be required to buy their higher-priced fuels, which by the way already receive outlandish taxpayer subsidies. President Bush is proposing a huge expansion of the corporate welfare state."

Even Conservationists think this plan is nuts: Steve McCormick, president and CEO of the Nature Conservancy: "We welcome the commitment of both the president and the Congress in addressing the causes and consequences of global climate change. Biofuels, including ethanol, may be an important part of the solution. But before mandating the production of 30 billion gallons of ethanol or more, we must carefully examine all the potential public consequences, both positive and negative. If enacted, an ethanol mandate of this magnitude could require the conversion of at least 30 million acres, possibly the single biggest change in American land use since the Civil War. That will have serious implications for both water and soil quality and wildlife habitat. It could also significantly raise the cost of gasoline, impacting local economies."

The dollar will pick a direction today, but there are a lot of dollars left for OPEC to flood the market with, and they can keep doing it until China gets angry and tells them to stop (probably 84 at worst). Keep an eye on gold to see how we're doing, but Bush has found a way to inflate the core CPI in a way that oil never could, by running the price of corn up 75% in six months and pushing a policy that would require another 30 million acres of it to be planted, at any price!

Oil Dollar Gold 24 01 2007 Chart

================================================================

No picks today: we need to manage our existing positions and, once again, think about lightening up if we can't start making some headway. At least now we've seen what happens if we don't!

Optionetics has some interesting commentary regarding new margin rules regarding stock options that go into effect on April 2nd. Effectively they will be reducing the margin requirements, by lowering the risk profile, for sellers of options who own the underlying security. This is a significant change and may have the net effect of substantially increasing the number of options available to trade. Thanks to Trader Mike for pointing this one out! This will be great for us as it will increase liquidity, but we need to be careful of is a large-scale increase in the supply of options devaluing our longer contracts!

Boeing Co. (NYSE:BA) says THERE WILL BE NO DELAY in the roll-out of the 787 Dreamliner. That makes Wachovia's analyst look like an even bigger idiot than I said he was. My exact quote from Monday as BA dropped: "BA is trashing the Dow! Wachovia's analyst is clueless! The commercial aircraft order cycle has peaked." Well, Duh! BA can't handle any more orders this decade, that may cause some "peaking! I was going to sell the Feb $90s but now I'm going to by them for .75!"

Cingular Wireless said profit more than tripled as the company added 2.4M subscribers, actually a better percentage growth rate than China Mobile (Hong Kong) Ltd. (NYSE:CHL)! This is great news for out AT&T Inc. (NYSE:T) $35s, already at $1 (up 67%) and a roll might be in order... In case you're confused about why I love T so much, here's the Colbert Report's excellent explanation.

Read all of Phil Davis's articles on Seeking Alpha

Source: Options Trader: Wednesday Morning Ideas