Maybe it's different this Time? Futher thoughts on HUN & COTW

Fellow Friends and Traders,

Our monetary policy is very loose, yield curve is steeping rapidly and we're in uncharted waters. Now tell me something I don't know. Broadly speaking, the shape of the current 10-year curve is very similar to four previous times.

11/81 - 02/82 yields rose 2.03% S&P down 9.12%

05/83 - 08/83 yields rose 2.08% S&P down 2.53%

05/87 - 10/87 yields rose 3.1% S&P down 7.7%

01/94 - 05/94 yields rose 1.9% S&P down 6.72%

12/08 - present yields are up 1.85% S&P up 5.6%

Maybe it's different this time?  We have four very different situations and different than we face today. The one commonality is the loose monetary policy.  Yes, the recent rise in long rates is a supply problem, expected higher future inflation but partially a repudiation of the Fed's ability to control the long end of the curve in treasuries.  We are in uncharted waters.

I was not happy about the broad -based reversal in the market after a big rally early in the day.  Is this a sign of a top? See above.  Many others are screaming it's a new bull market now that we have broken through the 200 DMA.  Remember the markets do what they have to to hurt most of the players.  Many investors are being dragged kicking and screaming into this rally for fear of missing out.  Most investors worship at the altar of momentum, not my favorite church. Looking ahead into next year we face rather large headwinds with further increases in energy and much higher tax rates. There are other problems too many to mention now.

I'm not turning bearish, just cautious.  I've closed out final positions in HTS over $26.25.  Add $1.00 from the call write that's back to the year’s high. I've sold a large put position hoping to buy HTS back cheaper or just keep the premium. I will sell most of Annaly (NLY) after it goes Ex-dividend later this month. I see mortgage rates much higher and harder to come by.  Bob Pisani of CNBC fame yesterday mentioned he refinanced his home 5 weeks ago with a 30-year mortgage with a 4.7% fix rate only to see current rates  go to 5.6%. This won't help consumers either looking out into the next 6 months.

I've sold almost all of my energy and reflation stock holdings and replaced them with calls out 2-6 months.  I will sell more puts and/or buy stock back on weakness such as $55-60/barrel.  I'm very bullish on energy for next 2-3 years.  Oil hit $69 on started to back off but a $95 year end price forecast by Goldman Sachs popped oil higher on Friday.  Another famous hedge fund Guru Julian Robertson of Tiger management fame has gone "all in" on the reflation play for the foreseeable future.  We're in good hands here and we are not alone.

I've continued to sell BAC puts while nibbling at a few calls.  Why Bank of America?  I mentioned the reasons before but Cramer favors BAC as a triple barrel play on the housing cycle, TARP and the Mutual Fund Cycle.  Cramer believes MFs are going to buy BAC big time because it's way behind the market and has all the equity dilution behind it.  I concur.

Now it's time for my favorite HUN.  You saw my two earlier emails this week so I won't rehash the obvious.  I believe that with just a little patience the bank’s insurance companies will force banks to settle.  After all it's their money.  Start your engines.  Surprise 440,000 shares of HUN traded after the bell and closed the stock up $0.19 more or $6.59.  Settlement Monday?  I'm guessing we'll see well over a million shares trader even higher after next Friday's close if nothing happens this Monday.  Use weakness next week to buy more calls or just trade common shares intraday.