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Tuesday, December 05, 2006

higher and higher

To the tune of the Jackie Wilson classic

your cash keeps lifting me
Higher and higher
Higher than I ve ever been before
So keep it up,quench my desire
To take the market higher and higher


You know your cash(your cash keeps lifting me)
You know your cash(your cash lifting me)
Higher(lifting me,lifting me)higher and higher(lhigher)
I said your cash keeps lifting me(higher and higher)

Once I was down on the year
No performance fee in sight
But the your cash came in
And we’ll make so much it’s a sin..cause your cash keep lifting me

This market just wont go down. Bad economic numbers? Great, the fed will lower. Lets go higher. Good economic news? See..I told you things were okay..lets go higher.There are signs of inflation, deflation, we re losing a war to guys who ride camels and cant read, ttwo of the craziest men in the world have access to nukes, there is going to be gridlock with a lameduck president( okay..I ll grany that this may in fact be a good thing), housing prices are in disarray, we re seeing rising defauklts and late pays in the sub prime mortgage market and NO ONE CARES. Lets party, buy some stocks, bid em up. The market climbs a wall of worry my ass. Its climbibg a ladder of complacency right now. You might be able to sell me the fact that this market is fairly priced..providing I ve been drinking heavily.but undervalued. I can’t see it. The bond market and the dollar are telling you its just not that good out there right now.We have rallied alost 12% sonce August without a real pause of any length and anybody who is not cautious now pretty much deserves what they get.

So what to do now? Same things I ve been doing. I really like the Energy Services Acquistion warrants here. There are no institutional shareholders in this one at all as thi game out after the SPAC game had cooled down. Marshall Reynolds is the CEO here and has a reputation of being an astute buyer and seller of companies and running them profitably. Given that we can buy 4 and a half year 5 dollar warrants for less than .40 each it’s a good cheap call on him achieving success again. I am still long Walters (WLT)
and selling dec and jan 50 calls against it. A buyer of BXL although its hard to get more than a 100 shares at a crack , of Optimal (opmr), IPASS (IPAS), Nashua(NSHA) Secure computing(SCUR and petrohawk Energy(HAWK). Right now I am over applying the concept of margin of safwety and only buying stuff below book value with a stron catalyst, usually in the form of an activist or two in the deal.

At some point we will get a sell off. When we do I ll be looking to ramp up and get big long. But right now, being cautious is paying and paying well. Buying below book and in some cases selling options around the position has been very profitable this year and has kept the over all risk profile fairly low. I d like to be aggressive here but I just cant get complacent enough.

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