Tuesday, July 5, 2011


Trading idea: Super-cheap call option speculation: EWJ September 11 calls for $0.13.

I'm seeing rumors that MSFT might be interested in acquiring Yahoo! Japan.

The June Markit composite purchasing managers' index for the eurozone dropped to 53.3 -- that's the worst print in 20 months.

Germany and France's PMIs hit eight-month lows, while Spain and Italy have fallen below 50 (indicating contraction).

Euro retail sales dropped by 1.1% in May (month over month). The decline was broad based, with 13 countries exhibiting a worsening trend and only eight nations showing growth in sales.

Run, don't walk, to read a thoughtful New York Times editorial by David Brooks today.

Factory orders grew slightly less than expected, rising by 0.8% vs. +1.0% consensus.

Nondurable shipments dropped by 0.2%, reversing April's +0.4%.

The increase in inventory build -- the inventory/shipments ratio now stands at 1.34 months -- should give some pause on the part of the economic bulls.

I expect interest rates to drop back down a bit after the marked advance in rates over the last two weeks.

The recent rise in the price of oil following the strategic petroleum reserve release is a renewed concern and headwind to growth (and to confidence).

A further rise to, say, over $100 a barrel will jeopardize the fragile economic recovery in place and put more pressure on the average Joe, who has been victimized by screwflation.

The past repeats itself almost constantly, as witness the multitude of Tuesdays that are virtually indistinguishable from the multitude of preceding Mondays. Disruptive, let alone epochal, change is necessarily rare, and the avant-garde thinker is prone to see shadows or to shoot at ghosts. Extensive experience has taught me that there are many ways to be wrong about markets; through shortsightedness, of course, but also through excessive farsightedness; through pride, ignorance, bad luck, impatience, imagination or sophistry. My signature variation of this latter pitfall is to apply "the lessons of financial history."

-- Jim Grant, Minding Mister Market: Ten Years on Wall Street with Grant's Interest Rate Observer

There was the market swoon coincident with the Japanese earthquake, tsunami and nuclear accident and, most recently, a remarkably similar descent in share prices as the sovereign debt contagion swept more broadly throughout the eurozone.

What we have learned, with the benefit of hindsight, is that both declines were an opportunity to buy.

In all honesty, though, over time and even in a relatively flat decade for stock prices, optimism, not pessimism, on balance has paid off.

In reality, shouldn't Jim Grant's words and wisdom apply critically to both cynics and cheerleaders?

Indeed, the facts are there in support of stock market optimism triumphing over pessimism:

* Statistically, stocks over the long run tend to rise (on average) year over year.

* The mass of the people has the weight of the money on its side, and the crowd is innately positive on the future and invests for the future.

* Corporations are generally managed by capable executives who want to succeed, not fail. Rising profits, expanding dividends and opportunistic buybacks are general objectives of their management policies.

* Demographic growth (population increases and household formation) provide a gravitational pull toward domestic economic and corporate profit growth.

* And governments, as stupid as they can be -- and they were awfully stupid in the last cycle -- will do nearly everything in their power (policy-wise) to advance economic growth, even in the face of economic tragedy or near-economic-Armageddon.

The curse of negativity can be an albatross around your investment neck.

In the final analysis, what I have learned over the years is that the fear of being out should trump the fear of being in over nearly any meaningful time frame.