Options Trader: Tuesday Morning Ideas

by: Philip Davis
Sea Turtles Look to Escape Hurricane Dean.

That’s on Page 1 of the on-line Wall Street Journal today! Did Murdoch take over already?


I’m getting very sensitive to changes in the Journal, as it is always open on my desktop and I use it as my reference of choice since I can’t expect members to subscribe to everything. I do expect them to keep up with the Journal, however, so I post links from there with the assumption that people have unrestricted access.

It will take a lot more than a few "page 3 girls" to get me to cancel my WSJ subscription, but I’ve already started cross-checking things I usually take for granted, like last night’s article which pitted Democratic Senator Kent Conrad against Fed Governor William Poole in a manner which made Conrad look like an idiot.

Well I checked it out, and it turns out he IS an idiot and actually did say exactly what the Journal said he did - but it reminds me how easily a trusted news source can be used to influence public opinion.

News in Brief

The image on the left is from Mr. Murdoch’s UK Sun paper, which has a circulation of 3M per day - equal to the NY Times and 4x larger than the WSJ (and NO business section). Rupert does Ann Coulter (who Zoe looks a little like) one better by having totally naked girls shoving propaganda down British throats.

I can just imagine the venerable Bancroft family passing pictures of Zoe and Anna around the oak conference table while discussing the "merits" of selling out to a "seasoned" newsman. Murdoch has already made is clear that he intends to expand coverage of "non-business" news to boost circulation. “There’s a lot of other news and a lot of other things we can do." said Murdoch, who is philosophical about his pending reception at the Journal: "If people have been saying it’s against their principles to work for me, we’ll of course respect that."

Principles will indeed be put to the test throughout the Dow Jones (DJ) corporation. Founder Charles Dow was born on a farm in 1851 and never graduated high school, but worked his way up in the news business to start the Journal in 1889 and revolutionized the financial industry by finally giving investors an accurate picture of corporate activities, devoid of the usual propaganda of the times. Rupert Murdoch was born in Australia in 1931, went to Oxford and inherited a controlling interest in The News when his father died in 1952. We’ll soon see what values an educated fellow like Murdoch can bring to the WSJ!

Now where was I? Oh yes, the markets… I was so flabbergasted at page one this morning that I had to get that off my chest, but let’s see if we can get some work done before the bell:


Asia is up but, as I said in yesterday’s wrapup, not nearly as up as they were at the open. China announced they will let investors trade the Hang Seng (they were previously restricted to the Shanghai) which explains the HSI’s recent 3,000-point (15%), three-day gain, but does not explain how those buyers knew China would announce that last Friday. "The Communist Party - Membership has its advantages!"

China also raised their lending rate 0.18% to 7.02% and is also increasing the one-year rate paid on deposits to 3.6% from 3.3% effective Wednesday. I mentioned this would be inevitable while I was on vacation as Chinese inflation is clearly way too high and now, according to the Journal:

Accelerating inflation had fueled speculation that the PBOC would raise rates again. A surge in food prices pushed Chinese inflation in July to its fastest growth in a decade. China’s National Bureau of Statistics said its consumer-price index was up 5.6% in July from the same month last year, the highest rate of increase since 1997. Food prices were the main culprit, led by a 45.2% rise in poultry and meat prices.

Tuesday’s rate increases, the fourth this year, come after inflationary pressure and abundant trade- and investment-driven inflows showed no signs of easing in July. This has heightened concerns the world’s fourth-largest economy may overheat, despite an acceleration during the past year in monetary tightening and administrative measures to curb credit and exports.

The War of Wealth

Central Banks continue to prop up the markets, but I was interested that John Henry & Co. reported a substantial loss in the carry trades last month - this is one of my seven signs of financial apocalypse!

Over in Europe, financial stocks were under some pressure after the chief executive of German state-owned bank WestLB warned of a crisis in Germany’s banking sector, as it becomes increasingly difficult to secure foreign credit. "We sense a reluctance on the part of foreign partners to extend credit to German banks," Alexander Stuhlmann told journalists on the sidelines of a bank event Monday evening. Two German banks, IKB and SachsenLB, were forced to get bailouts to cover risks from subprime exposure… UK home prices are already turning down - can we really afford to have a crisis on two continents?

Europe is choppy this morning but will likely head down as Paulson is on TV NOT saying the Fed will bail out SPECULATORS (let’s start calling it like it is) who bought stock, homes and oil at the top of the market because Jim Cramer (and I now see he is being scapegoated!) told them to BUYBUYBUY.

Click to Enlarge
Oil Gold Dollar

People in the US are BUYBUYBUYing T-Bills at 2.9% IN RECORD VOLUME T-Bills at 2.9% IN RECORD VOLUME and if you don’t think that’s worrying, then I really don’t know what I can possibly say to convince you that all may not be well! "The market is totally, absolutely, completely in fear mode,'’ said John Jansen, who sells Treasuries at CastleOak Securities LP in New York. “People are afraid that lots and lots of mortgage paper and mortgage paper derivatives of all sorts is completely opaque and they can’t price it.'’ The linked article here is a MUST READ!

Click to Enlarge
US Markets

Cash, cash, cash. Cash, cash and more cash and did I mention - CASH!

That’s all I have to say right now - time to watch the fun!