"Too Far, Too Fast" Mid-year Roundtable Comments from Barron's

Fellow Friends and Traders,

Barron's says, "It's a pandemic, all right-a pandemic of bullishness that is sweeping stocks markets here and around the world."  Fred Hickey, a round-table panelist, notes not only is the Fed but other Central Banks are pumping money into the system like madmen. The money isn't going into the economy; it's going into asset prices. The situation is reminiscent of the past 14 years when the Fed primed the pump and created bubbles everywhere.  He further says that recently there have signs that the insanity might be ending as the $ has fallen and yields on U.S. Treasuries have risen dramatically. To short assets in the next six months would be suicidal.  He asks the big question we are waiting to have answered.  How much longer will the Chinese be willing to sit on $800B of Treasuries, $2T of mostly dollar reserves and watch our currency drop while our government spends $2 for every $1 it takes in? I think we already know the answer.
 
The selloff correction will come as the fundamentals don't match Wall Street's current perception. This rally in assets has been based on inventory restocking but sales to end markets haven't improved.  There are significant headwinds looking into 2010 as mentioned before.  Looking for a retest of the March lows is out of the question but a retest of 820ish is not out of the question.As the market advances the list of leaders continues to shrink.  The crowded trade looks vulnerable. Everyone has been piling into oil, materials and techs while shorting bonds and the USD. This trade looks tired and is starting to unwind these last few days as bonds exploded, the USD rallied forcing commodities lower. The NASDAQ has been advancing to new highs while the number of stocks hitting new highs are declining.  NASDAQ has now begun to lag and perform poorly on a relative basis to the NYSE.
 
We note that market tops are much broader and take longer to form, not like the "V" formation we see at bottoms. We had two chances to breakout the top of the trading range this week and each failed. There is an old saying, “Watch what they do not what they are saying.”  Insiders continue to sell fast and furious.
 
There is little I can add to last week's stock comments. Our stocks continue to consolidate. To go higher or lower is the million dollar question.  Personally, I am positioned for a correction.
 
I'm disappointed HUN didn't act better Friday with the trial starting Monday. Everything I read and hear tells me Peter Huntsman wants his day in court. I don't believe anyone wants Apollo’s Black to get 20% of the deal proceeds if HUN settles before trial.  Furthermore, no one has mentioned the specifics of Black's deal with HUN.  So I ask, “Did the trial start with jury selection Wednesday or when the bailiff says, "All rise court is now in session," Monday morning?”
 
Regarding the settlement, I'm still not counting out next weekend as the most likely time for a deal.  Might long June 7.50 calls holders screwed?  Maybe?  My second choice would be sometime before a jury verdict in early July.  My third choice would be after the bank’s appeal.  (I'm "hoping" for #1, prepared for #2 and reluctantly resigned to #3!)  I continue to trade HUN at the margin (at the edges) both for options and stock while continuing to increase my overall long call position.  Go HUN!!!