Interesting Reactions

by Larry Levin

There were no scheduled economic reports today; however, there was news of one degree or another. What was interesting was the reaction to these events.

JPMorgan Chase's CEO said today that while the crisis in the credit markets appears to be three-quarters over, he believes a U.S. recession is just beginning. "Even if the capital markets crisis resolves, it does not mean that this country will not go into a bad recession," said Jamie Dimon. "The recession just started."

Mr. Dimon was speaking at a conference in New York when he added, "We're thinking there's a third of a chance that it's going to be pretty bad... closer to the 1982 recession than the very mild recessions we had in 2001 and 1990." And although the markets reaction to this was too ignore it, that wasn't at all surprising. His following comment was, however, a bit surprising. Regarding the acquisition of Bear Sterns, "I want to make it perfectly clear: Mission not accomplished." He warned investors that while he still believes the deal was a good decision, "we are bearing an awful lot of risk" by taking on Bear Stearns' assets. That sounded like a frank admission that there are problems with the fire-sale purchase engineered by the Fed. Maybe all of JPM's risk isn't priced into the stock, yet it closed up today.

It was said that stocks rallied today because oil finally fell by $2.00-barrel. Although this is good news to some degree, is a $2 drop worth the excitement? The reaction to a $2 drop in oil is met with excitement, while a $2 rally is met with indifference 99% of the time. "It's priced in" people say. Ummm, why wasn't the $2 drop "priced in?"

The financial media reported that stocks were also stimulated by the broad rally in the US dollar against foreign currencies. I checked the closing prices - not so much. The US dollar fell against the Euro, Canadian dollar, Aussie dollar, and British Pound. It was only up against the Japanese Yen. The US dollar was stronger this morning, but when the rally fell apart the market's reaction was indifference.

The early rally was due to a weekend report in The Wall Street Journal that said the Bush administration was leading an international effort to put a floor under the currency. The Treasury Department will now be leading the effort to "talk up" the US currency, rather than some of the following stronger remedies: less spending by Congress, no pork in the budget, halting ethanol subsidies, eliminating tax breaks to huge corporations, and slightly raising interest rates. Since this is a political tactic, only the wrong things will be done.

MBIA was back in the news today. You remember that muni-bond insurer, don't you? It's one of the two companies that have lost 90% of their capital - yet still enjoy AAA-ratings by the rating agencies. Apparently the worst isn't behind MBIA. If it were, MBIA would not have lost another $2.41-billion in one quarter. This now equals $4.71-billion in losses over a scant 6-month period. Do you remember the big hullabaloo over MBIA's capital raising orchestrated by the NY insurance department? Well, that money is gone - toast - vanished...up in flames with the latest report. The markets reaction to this news was predictable: MBIA stock rallied +4.5% today.

Oh...nooOOoow MBIA's problems are in the rear view mirror. OK, I get it (wink-wink). How many decades will it take to make that money back? I'll bet the CEO is working hard and will be getting a raise soon.

Perhaps the main driver of today's rally was the soon-to-be- merger of HP and EDS. The market was all aflutter with the M&A news. The mildly interesting reaction to this possible merger was just that it was business as usual, and I suppose it'll never be different. Isn't it odd that nobody remembers the "greatest merger of all time," one that was a harbinger of permanent good times...the AOL/Time Warner merger? Funny how the worst merger in history is never cause for concern...ever.

Is an HP/EDS merger going to bring down gas prices?

Is an HP/EDS merger going to make home prices affordable?

Is an HP/EDS merger going to put in a floor to the US dollar?

Is an HP/EDS merger going to stop inflation?

Is an HP/EDS merger going to bring down credit card debt?

Is an HP/EDS merger going to bring back Bear Sterns?

Is an HP/EDS merger going to halt foreclosures?

Is an HP/EDS merger going to cure cancer?

Is an HP/EDS merger going to raise the standard of living for any Americans except those doing the deal? - NO!

Can an HP/EDS merger beat up Chuck Norris? Hell no, but Chuck Norris could probably accomplish most on the list above. We just need to give him a chance!

Real Time Trading Signals*for

Trade Date: 5/12/08

E-Mini S&P Trades*
(before fees and commissions):

1) PP buy @ 8:55am at 1388.75 = b/e & b/e

2) VA sell @ 9:25am at 1389.25 = b/e (1 lot)

3) PP sell @ 9:40am at 1393.75 = -2.00 & -2.00

4) OTF buy @ 11:30am at 1397.50 = b/e (1 lot)

5) Engf buy @ 2:30pm at 1402.75 = +1.25 & +1.00

6) Algorithm trades (6)...combined total...-5.50

7) *** Amazingly, EIGHT trades went unfilled today...all would-be large winners!

E-Mini Russell Trades*
(before fees and commissions):

1) Sell @ 9:03am at 720.8 = +1.0 (1 lot)

2) Sell @ 9:19pm at 720.3 = -1.2 (1 lot)

3) Buy @ 9:55am at 727.0 = b/e (1 lot)

4) Sell @ 10:28am at 725.8 = -.9 (1 lot)

5) Buy @ 11:17am at 730.0 = b/e (1 lot)

6) Sell @ 12:47pm at 727.2 = -.6 (1 lot) ...-$170


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