Davis's Thursday Outlook

 |  Includes: DIA, QQQ, SPY
by: Philip Davis

Well I made my bull case in last night’s post, now let’s see what kind of mess we’re dealing with today…

As expected, MBIA reported far less than $12Bn in losses that were bandied about yesterday by Wall Street hyenas and an irresponsible MSM, but $2.3Bn lost in one quarter by a company with just $2.3Bn in SALES (not earnings) is simply not good. MBIA (NYSE:MBI) wrote off $3.5Bn in credit derivatives giving them a tax break (oh sorry, I mean loss on paper) of $1.9Bn for the year, compared to a profit of $819M in 2006.

John Laing wrote an excellent article on how overdone the MBIA sell-off was in Barron’s last week so I won’t get into it here but we really need to get real with these financial companies. Perhaps the company was a little overvalued at $70 in October but, had they not written off $3.5Bn (again, paper losses) they would have shown a profit of $1.6Bn for the year (and paid $500M in taxes). Barron’s is not blindly stating a bull case, back in June they correctly titled an article "A Mortgage Meltdown for MBIA?" and were just a little bit ahead of the curve, as was I when I said way back in 2006 that Amaranth was just the "Tip of the Iceberg."

Even an iceberg forms a base if you go deep enough and MBI down 82% and (ABK) down 88%, we just may be near enough the bottom to hit something solid. I’m not ready yet to dive back in there but I think I’ll begin a little speculative accumulation on both of these stocks with the MBI Jan ‘09 $20s at $3 and the ABK Jan ‘09 $20s at $1.75 and I will roll each down $5 for + $1.50 whenever it is offered. This will be fun if this thing turns around and there will probably be a chance to get out down 50% otherwise.

Well a 40% reduction in Fed Funds rates don’t seem to be exciting the markets today as jobless claims climbed 69,000 to a 3-year high of 375,000. Personal Savings climbed to 0.2% from 0% last month and that is going to scare the retailers as Personal Income was up .5% which led to a very low consumption rate, up just 5.5% for the year. Since food and energy are up close to 12%, that means pretty much all of US consumers’ extra money has been going to necessities (and IPods).

Asia was mixed this morning with Japan up 247 points, heading pretty much straight up all day and erasing a week’s worth of losses in one session. The Hang Seng dropped 197 points but that’s an hour’s move for them so we will consider that noise. Those snowstorms are shutting down much of China and crippling the economy, it will be our turn next year so make sure you hit those winter clothing sales!

Europe is off about 2% ahead of our open so we’ll just have to grin and bear it in the morning but now the Senate has passed the relief package, we can expect a mid-day announcement that may turn things up a bit.

RDS.A had a 60% rise in income on 5% lower output and a $716M "impairment" charge for keeping Nigerian operations off-line was a drop in the barrel compared to the $31Bn in excess revenues they gained from jacking up the price of oil to record levels last quarter. Thanks in large part to the efforts of Shell, inflation in the EU hit an all-time high.

We are down 150 just ahead of the bell and I’m selling my puts (will reposition later but these are huge profits) and will be rolling down, stopping out callers and bottom fishing so it’s going to be a busy morning. If we break below 12,200 I may have a change of heart but, otherwise, I think it’s a nice chance to grab all the things we wish we bought on Monday morning (seems so long ago!).

Have a fun day!