Monday, July 2, 2007

calling Bud Fox

The more I read of the M&A activity of so and so buying this company and so and so buying that, I am reminded of the scene in the movie Wall Street when Gekko wants to buy BlueStar Airlines. Charlie Sheen, who plays Bud's dad, goes off on the deal and says sure "Buddy's qualified to run an airline, he worked as a baggage handler for 2 summers." I think about that line and wonder to myself if any of the marks who finance these leveraged buyouts, and believe you me they are marks, ever ask this question. For example, Cerberus starts its dog and pony show this week to raise over 7bill, yes bill with a B to buy Chrysler. Do you think any of these Ivy league sophisticates are gonna ask themselves the question, " if ze Germans could not turn this dog around how are these financial chemists gonna do it? Seems like a rational question to me. Wasn't Cerberus the outfit that had reams of people going over the Rescap deal, like honeybees on a flower if memory serves me. But this is not about the quality of the steak, heck they don't care if there even is a steak. It's all about the sizzle and doing the deal. I read a study a while back that stated something like 90% of buying decisions are emotional. Ya think? oooops there is that bad word again. These institutional accounts and hedgies would sell their own mother(COD according to Larry Wildman) for 50 beeps in yield and we all know when you reach for yield you get your hand chopped off.

Knowing something is ridiculous (like lending money at peanuts over risk free rates with limited covenants, if any) and yet still doing it, well, the clinical psychologists may have a technical term for it, but my term for it is shit for brains!

Crude - To be perfectly clear, I am long crude and I want everyone to know it is not if but when the impact of higher crude prices affect the markets. Rising crude prices are not, I repeat not good for the market. I believe it is and should be a critical factor in your investment decision making. As falling rates are generally accepted to be good for the market and rising rates negative. The same can be said for energy prices and their increase negative for the market and vice versa. I know this sounds extremely simple but I believe there is elegance in simplicity. How many times have you searched the house for your keys only to find them in your pocket or your hand? This is not an indictment of human race but rather our belief that if it isn't sophisticated or difficult to comprehend it is inferior. With crude weakness is to be bought not sold.
The OIH(chart top center) is in clear bull mode, rally, consolidate, then rally again. The 50 day MA is extended from the 200 and a shakeout would be healthy. It would also get the bears out as well. A pullback from here to the Fib 0.618 retracement area would equate to $146.82 which I feel would be a gift to be jumped all given what we know now. The Amex oil index (SXOI chart top middle) paints a similar picture so I am staying with USO (chart middle bottom)for now as it it priming for liftoff and would trade back into OIH if the opportunity arose. Good luck and good trading to you.

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