I just finished reading Ralph Steadmans, The Joke is Over a great telling of his many year friendship with the good and great D gonzo, the late Hunter S Thompson. It should come as no surprise to those that know me that I am a huge Thompson fan sharing his love of sports, anything and everything political, writing and of course imbibing. I shall never be at his level without dying an ugly twisted death of regurgitated liver tissue and copious internal bleeding and leakage by mid afternoon, but I am a fan none the less. So with an effort to channel the good Doctors spirit , a look at where we are…
Lets review shall we? The most irresponsible dictator in the world is testing nuclear bombs. With what degree of success it is uncertain but the twisted bastard blew something up the other day. Home prices continue to fall, and the National Association of Realtors estimates that home sales will fall by close to 10% in 2006. However, in yet another sign that he became closely acquainted with a crack pipe since retirement, our good friend the BIG G insists that the worst is over for US housing markets. So, a bear mkt in housing lasts about 6 months and declines about 3% after a multi year run up with average gains in of 20% a year. Damn it, I knew I should have joined the Kiwanis and gone into Real Estate. Some alarming percentage of outstanding mortgages is at low or no interest rates and due to adjust to the norm over the next 12 months. Countrywide tells us today that their mortgage fundings dropped by over 30% in the third quarter. This of course had a huge impact on their stock price. It dropped 37 cents. The dollar is up, the bond market is up as those bottom feeding pain eaters over there seem to think that the world is indeed ending soon and it will be a profitable trade. The two best looking trades on the planet are long vol and the curve steepening trade. This has however been true for months and those that put it on early are now reading their car salesman manuals or serving drinks in some seedy roadside gin joint to dubious characters of questionable moral fortitude and their haggard desperate eyed companions. Consumer credit and confidence are both rising along at a merry little clip. The war in Iraq continues to be an absolute nightmare at best, quagmire II the sandy sequel at worst, Iran continues to posture. There are signs of the economy picking up slowing down, inflation, deflation and talk of stagflation. Our first peek at third qtr earnings is not that pretty. This of course is a lot like saying Paris Hilton is not a good model for temperance and virginity..or much a role model for decent television Alcoa missed, as did Legg and gannet. So in these times of general economic uncertainty and geo political unrest…it is only natural that .So stock prices are of course going higher, volatility is going down faster than a congressional intern and the curve remains inverted. Apparently the market mistress is on a screaming acid trip and ignores reality in favor of savage hallucinations of the mid 90s. That is the only explanation I can come with for the current ridiculous price of risk. There doesn’t have to be a crash but as it was pointed out to me the other day it has been over 60 days without a 1% decline in the Spooz and I m pretty sure Howard Stern was still spouting his perverse rants on free radio the last time we had a 10% monthly decline. Bad it seems, is the new good. And good is even better.
I see a few things around worth buying but I am VERY hesitant to make a large commitment. Buying large here feels like it has the potential to empty pockets quicker than a snarling cadre of ex-wives with a fierce alimony jones. I am going to go ahead and just buy some CALL. I find a 2.92 a share stock with over 3 dollars a share in net cash impossible not to buy. Net-nets are rare as hell these days so I just buy them when I find them. Of course, Ive gotten married that way a few times as well with shall we say mixed results? HAMP, the largest sweater manufacturer in the country has a share price that is almost entirely backed by cash as well, but there are some SEC issues and CEO theft that need to be dealt with so its doubtful the stock moves higher too soon so I can wait for a good general pullback. OPMR is tantalizing as well after crashing the wake of the misguided anti internet gambling legislation caused them to tumble over 50%. Even there it trades below book and at an 8 multiple of the slashed earnings estimates, and a lot of the share price backed by cold hard cash. I’m sure we all feel safer knowing that American ports are now protected by the lack of online poker. One can only hope that Bill Frist is soon discovered in the Senate men’s room with assorted underage naked pages and two shaved goats drawing dead to the goats aces full of kings. I am tempted to load up on this one but really need a down day to do so.
This stoned, evil and twisted market bitch continues to remain smiling and optimistic now matter what occurs here in the real world, the colorful drug induced visions of low rates high profits and free wheeling consumer spending erasing net worth from rational traders at an alarming pace. Meanwhile the cash flows freely to the buy today, everyday,the trend is your friend crowd and their champagne is served by out of work value guys and pattern traders. Hopefully this reverses at some point and returns us to more rational levels of pricing, pricing not only of equities themselves but the price of risk itself. Then these buy high sell higher geeks will get the thorough ass ripping that is justifiably theirs and go back into the filthy caves and sordid grottos of outer suburbia where they belong.